Technicals | May 26 2020
By Michael Gable
As highlighted last week, the S&P/ASX 200 Index has broken beyond resistance near 5500 and the next target will have to be 6000. As investors increasingly come to the realisation that we are not going back to the March lows, they will have to start stepping in and buy the dips. We can already see evidence of this.
As we warned many weeks ago, the "defensive" stocks will not participate in the rally, and that is now becoming more and more clear to people. Those defensives have done their job. We are now in a phase where cyclicals are moving. Think about a company that will benefit from the fact that lockouts are ending earlier, deaths in Australia are lower than expected, and the economy won't be as bad as what was feared in March. Those companies are the ones that are rebounding, and will continue to rebound.
Outside of the tech stocks, this is why our recent recommendations of stocks such as Aristocrat Leisure (ALL), BHP Group (BHP), Macquarie Group (MQG), Magellan Financial Group (MFG), James Hardie Industries (JHX), Santos (STO), etc are doing well, and others such as Harvey Norman (HVN), Sydney Airport (SYD), and Qantas (QAN), are now on the move. No tricky names in there or stocks flying under the radar - just quality household names. Avoid the ones that don't move, get into the ones that are.
Coming back to the broader market, although it has bounced strongly off the lows, we have to remember that we have only recovered one third of the losses. There are still two-thirds to go. The mistake that many investors make is that they equate "safe" investing to when all the good news is out in the open. When good news is out in the open, the market is back to its highs. "Safer" investing is when your risk/reward ratio is at its most appealing. It is when the downside is close by and the upside is still a great distance away.
This is what we are seeing now. If you missed getting involved several weeks ago, then it is not too late. It is not a tough decision to get into the market now. A share market that is trading with a ‘6’ in front of it puts you in a much tougher position when assessing your risk/reward.
Our chart this of 5G Networks ((5GN)).