The All Ordinaries fell -5.2 in February after a -5.0% fall in January. That makes the sixth consecutive month decline in the XAO which is the first time that has happened in the last 25 years. The XAO has shed -9.9% for the year so far which, from the glass half full perspective, is slightly better than 2008 when the XAO shed -11.6% in the first 2 months of the year.
Once again a new closing low was made in February (although the intraday low was not breached). However, those new lows remain only slightly below the lows of November last year. It is still my belief that we will close significantly lower than the current closing low of 3281.5 at some stage this year, more than likely below 3000.
As mentioned many times before, a common feature of bear markets is a series of short sharp rallies that fail and ultimately end in lower lows. As shown by the shaded area on the chart above, a rally of the short sharp kind has been noticeably absent since the market rallied about 14.5% in the space of 7 trading days from the November intraday low.
There has been a lot of talk about the market being oversold and that we are therefore due for a rally. I tend to agree, however remember last year that there was a lot of talk about needing a final cathartic sell-off to make a bottom, we got the sell-off in November, but not the bottom. Stock market lore is full of such platitudes just waiting to be debunked.
The point is, just because we are due for a rally does not necessarily mean we will get one. That said I believe we will finish higher in March. Whilst the fundamental picture for the global economy and corporate earnings continues to deteriorate, I believe some type of rally is in order. As usual though my predictions should be taken with a grain of salt....and don't forget to vote in this months poll.
Sunday, 1 March 2009