It could be said that the Australian business cycle really kicks off each New Year after Australia day as all the public holiday are taken and the kids are packed back off to school. Australians do like a good break at this time with the great weather that we traditionally see around December/January. This year has been very different with vast sections of the eastern states battling floods and potential second or third floods in a short space of time.
So the question we should pose is will this be a hindrance or a kick start to the year ahead? Well we can expect there to be a lot of rebuilding efforts to drive dollars into the economy. One could say we are talking the real economy as opposed to the market economy. This is a disconnect that occurs with the real economy or Main Street versus what is seen on Wall St. This is the American example, but I sure you get the point. The person on the street is struggling whilst the US indexes like the Dow are rising strongly to 2-year highs.
The knock-on effect
The variance between the two in Australia is not as wide. We are told that our economy is robust, with low unemployment and the knock-on effect from our commodities exposure to countries like China. However, as we return from our post Christmas, New Year and Australia Day celebrations will Main Street or the financial markets have more to show for our efforts? As a trader my main focus is off course the stock and commodities markets. They have been somewhat trendless as we see the Aussie Stock Market range trading in since October between 4500 to 4800 points. When compared to the Dow Jones that has moved from 10700 to 12000. We are definitely seeing different outcomes.
As part of the technical approach to the markets I employ, I also look at seasonal studies of markets like post holiday periods and the like looking for a point where statistically you have an edge as to where a trend might emerge based on previous history.
A quick study
A quick study of the month of February shows that early February can often be an area that produces turns in the markets that are not always to the upside and can be the start of a trend to the down side. A look at the last decade back to the year 2000 shows that of all the months, on the whole most months of February have been flat to mildly bearish with the notable exception of 2003 and 2004 that produced one string bearish move (2003 ) and strong bullish move (2004).
So taking this forward into 2011, based on this pattern we could expect that we are more likely to see a continuation of the malaise we are in as the real economy issues of floods, interest rates and inflation all take the attention of investors and traders. There are still likely to be stocks that move strongly, so the month of February is going to be about stock selection and hunting out the movers and showing patience if the trend is not established. The good news is that after February things do start to see some more regular movement, so here's to a more defined trend.
I hope you all enjoy your Australia day celebrations and that those doing it tough out there on main street catch a break and get up and running as quickly as they can.
Good Trading.
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