This week the All Ordinaries Index looks set to close at its highest level since December 2007, as the market continues to rally.
While the Materials sector has slowed, gaining just 0.5 per cent in the past week, the Financials sector has risen nearly 2.5 per cent. The big four banks, led by Westpac, which is up around 3%, is pushing the market higher, while AMP further strengthened the sector as it was up over 3%.
The last time the All Ordinaries Index traded above 6500 points was over 11 years ago on December 17, 2007, which was the start of the decline into the GFC. As mentioned previously, for the market to rise both the Material and Financial sectors need to move together, which they have done in recent weeks with Materials rising over 15%, while Financials are up over 10% for the year.
Again these two sectors are key to the market making strong gains this year and they will pull other sectors with them as the market mood becomes more bullish.
Over the last three decades, April has been a top-performing month in the calendar year and over the past five years has averaged a gain of 1.58%.
Historically, June has been the worst performing month with the All Ordinaries Index averaging a decline of 1.4%. This suggests the current bull run may end soon with the market likely to fall away into June.
Looking at the sectors, Information Technology was the best performer up around 4% followed by Utilities and Consumer Discretionary, both up around 3%. Materials and Communication Services were the worst performers as both were just barely in positive territory.
Of the top 200 stocks, Bellamy’s led the charge up over 18% and Eclipx Group was up nearly 15% followed by Appen and Breville both up around 7%. The worst performers were Galaxy Resources down over 5%, and Northern Star and Spotless down around 4%.
As I indicated in my last report, volatility has been very low, which can signal a change in trend.
Last week volatility was up by around 5.5%. With reporting season upon us, this adds weight to my reasoning as to why we need to be prepared for the market to turn sometime soon.
What to expect from the market
The old saying to make hay while the sun shines rings true right now because while the All Ordinaries Index is bullish, we need to stay with it to reap the benefits.
That said, any new opportunities should be considered carefully, as the market is getting very close to heavy resistance from its previous all-time high in 2007 at 6873 points. In fact, the market is less than 6% away from this level.
Therefore, while the market may rise for another two to four weeks I recommend investors exercise caution, as it is highly likely to fall into a low in late June or early July.