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A year end look at the Australia 200

A year end look at the Australia 200

Amazingly, the ASX 200 index looks like finishing 2015  pretty much where it closed the last two years.

This flat result for the overall "market" is a little misleading. It hides some very large moves in industry sectors and individual stocks.  It also masks a wide range of results for share market investors. 2015 probably hasn't been a great year (at least on paper) for buy and hold investors with large weightings to popular investment stocks like Telstra, Woolworths and BHP. CBA's flat year hasn't done much to help either. On the other hand, those with the foresight to ride to the China food boom with stocks like Blackmores might be pretty happy. Active traders who bought close to the beginning of this year's Santa rally have finished on a good note as well.

The flat result in the overall index reflects an even balance of large moves in different directions. Three of the 10 industry sectors are well down over the past 2 years:










  • Energy -41%
  • Materials -31%
  • Consumer staples - 12%


These industry sector groupings themselves paint a pretty broad brush.  Some include widely differing results. The consumer staples group, for example, contains stellar performers like Blackmores and Bega Cheese.However, the sector is dominated by Wesfarmers and Woolworths.  Intensifying supermarket competition saw these stocks under perform, dragging the sector into the red.

Over the past 2 years,  the major out performers at sector level were:










  • Healthcare up 71%
  • Utilities up 29% and
  • Industrials up 23%


In the middle came:












  • Telecommunications up 11%
  • Info tech up 10%
  • Consumer Discretionary up 9%
  • Financials up 8%


There were some turnarounds in this middle group. Telecommunications (basically Telstra) was down 3% in 2015 after a good year in 2014. Similarly Financials were up 6% in 2014 but gained only 1% last year. The  Consumer Discretionary sector went the other way. It was up 14% last year after falling 4% in 2014.

So should investors take a contrarian approach in 2016? Is it time to cash out of strong sectors like healthcare to buy mining stocks? Contrarians would have been confronted with the same choice last year. Healthcare was the star in 2014 while mining and energy were well down. But the contrarian approach  was the wrong option for 2015. The mining and energy sectors had an even worse year . Healthcare couldn't replicate it's stellar 2014 performance. It did however, manage a none too shabby gain of 14% in 2015.

With the  benefit of hindsight, one of the best strategic approaches over the past two years has been active management. This involves holding a core portfolio of stocks but using part of your portfolio to actively buy and sell; ideally buying quality stocks into weakness and then selling when valuations improve.

This approach has suited the times. Between 2009 and 2013,  overall share market valuations  recovered from the GFC. This rising tide floated most boats higher. Since then, overall index valuations have been relatively stable. On top of this, economic growth has been low creating a flat environment. At the same time, a combination of the China effect and disruptive technologies has created major winners and losers at industry and company levels. It's an environment that adds up to a range bound index which hides some big trends (both good and bad) for individual stocks. This looks like a situation that could easily continue into next year.


ASX 200 Chart


The long term weekly chart supports this range bound outlook. The recent low neatly picked up long term trend line support dating back to the GFC low. This and recent lows have created clear support around 4900. (I've used the ASX 200 because the recent supports are better defined than they are on the Austalia 200 CFD which includes some large overnight dips)

The 100 week moving average is another feature of this chart. It's done a good job of defining major trends. There have been many occasions when this average has represented support or resistance for the ASX 200. The index broke below the 100 week average back in  August. Now it forms resistance, together with a horizontal chart line between about 5375 and 5465.

So the big picture range for the index appears to be between about 4900 and 5500.

Right at the moment, the chart gives reason to hope that if we are going to break out of this range, it will be to the upside. The Santa rally has been strong although volumes have been light. The slow stochastic in the box below the chart also continues to head higher out of the over bought zone which is a positive.

If the index does break above 5500, it has pretty clear air for a test of the next major resistance around 6000.

ASX 200 Index Weekly Source: Bloomberg ASX 200 Index Weekly
Source: Bloomberg

Happy New Year

On behalf of CMC Markets and my fellow blog posters, thanks for your support in 2015 and all the very best for 2016



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