As investors everywhere hope for a resurgent 2009, I have cast my eye over the year ahead. How will the share market perform? Sector by sector here are my predictions.
XAO
We are now entering a very interesting phase in the market: although we are still locked in a sideways move, we are now about to have a real test of the November 08 low to see whether it will hold up under downward pressure, following the very bearish week we have experienced this week. We have seen nearly a 7.5% fall from last week’s high to this week’s low.
In the short term we could see another week down, finding support at around 3400 before resuming an upward move to around 4000. In the medium term the All Ordinaries Index should rise until May or June this year to between 4000 and 5000 points, although I suspect it may only rise to the lower end of the target. If we don’t see the market return to moving up in the next 3 weeks, then I suspect the market may fall to at least 3200 again – although in saying that I believe probability of this occurring is low.
Sectors
XHJ – Healthcare
The healthcare sector is still locked in a sideways move which began back in October 2007. The conundrum with this sector is due to the formation of the last yearly low as it is not yet clear where it occurred – the low in July 08 and the low in December 08 are both contenders for the title. Given this, the direction for this sector is uncertain as it could go either way, however one could suggest that if the All Ords rises then it is likely this sector may follow suit.
Of the big shares in this sector COH and CSL are looking good, and of the smaller shares RMD looks interesting.
XFJ – Financials
The index is likely to fall further before the current decline concludes followed by a run up to test the 2003 low at around 3500 points. In support of this view, the index has been trading sideways at around the 3500 point level for around 10 weeks. As we are yet to have a solid move up, probability exists for the index to break out on the underside of the sideways pattern to approximately 3000 points. If this occurs the index is more bearish than expected. This index is due for its next low later in the year around July to September 09.
The banks in general are most likely going to be heading down in the short term, however shares of interest within the sector are MQG and WBC as they may represent some nice short term trading opportunities, Westpac once the SGB merger settles down. Whilst MQG which with SGB was the top 2 performing banks in the past decade, moves quickly and adapts to the times, therefore they are likely to prove they are resilient and should regain some of the lost ground of the past year.
XEJ – the energy sector
I have been concerned about the way this sector has unfolded for a while as it has not performed as well as its fundamentals have promised. This is unlikely to change in the short term and possibly for most of 2009, however I believe in the longer term this sector will perform.
Most of the stocks in this sector have been punished quite severely over recent months and I don’t see any reprieve in the short term. We have heard about mine closures, projects being put on hold, job losses, all on the back of falling commodity prices. WPL is always a favourite but not a buy now – it is being weighed down by declining oil and gas prices impacting the bottom line. Risk with WPL is the same as the index in terms of where the low is likely to come in. PDN is becoming interesting, although still not out of hot water and is likely to move down in the short term to test support before rising.
XDJ – consumer discretionary
We may see a further decline to around 950 (and it could dip slightly below) before we see a decent rebound from the index.
Some of the bigger stocks in this sector are still falling, such as BBG for instance which is one of our favourites. However it is still likely to experience further downside risk over the coming weeks following which there is likely to be a short term move up to high around May to August 09. NWS is another stock we are watching closely and although is not a good proposition now, it is likely to provide a nice opportunity over the coming 6 months. TTS is also starting to look very nice and although its short term upside is not strong, longer term it looks much better.
Materials – Although the sector has performed well over the last month, about a third of the gain is now given up with this week’s bearish move. Our main risk continues to be whether the sharp straight move down over the last 9 months has now fully unfolded, therefore need to see signs of a bullish move. However these need to be viewed with caution in the short term as they could be a false move. BHP is probably the best stock in this sector with a good balance sheet, although the earnings growth forecasts are very modest.
Industrials – Although the sector was moving up over the last 5 weeks, this week has seen the giving up of more than half this gain. This is not a preferred sector for 2009
Information technology – Has moved up strongly over the last 6 weeks, although this week we are seeing some indecision which could flag a change in sentiment in the sector. Computershare is the best stock in this sector, and another stock with great fundamentals – this is a stock worth keeping on your watchlist over the next month
Utilities – Continues to look weak, although in saying that the bearish sentiment may be diminishing, but we won’t have confirmation of this for another month.
Telcos – Long term down trend continues, as does the bearish outlook, with a probable risk of around 15% on the downside
Consumer staples – trading sideways over the last month without conviction, and may have 15% risk on the downside
Oil
For some time now I had been expecting a low in the oil price at around $35 and recognised that as $40 and $30 were also important levels for the commodity to hit, it was likely to trade within this range. I also said that when it traded into the $30 to $40 range it was likely to trade sideways for a while to test resistance levels. I also believed that the absolute bottom, if it continued to fall to the lower part of the range, might be closer to $25.
When it does turn around and get going oil is likely to head back to around $50 and then continue on to between $60 and $70, most likely by August/ September 2009.
Gold
There is a reasonable chance the October 08 low may be the 8.5Y low in Gold, but this is not yet confirmed. This week Gold has formed a low of $806 and I am expecting that Gold may continue the momentum of this week into next week with a low of around $800 before showing a return of strength by the end of next week. From here I expect the Gold to rise up to form a high at around $925 by mid February 09, and in the medium term may move up to around $1200 by August/September 2009.
Interest Rates
I anticipate interest rates will continue to fall most of this year to its eventual bottom probably in the third quarter of 2009. Moving into 2010 we would expect interest rates to start rising slowly, therefore locking in interests rates would be advantageous. Locking in at a target rate of around 5%, will likely reap benefits over the coming 3 to 5 years.
