I have long held the view that punters don’t really care too much about corporate bad behaviour. Unless it is close to home.
So, the bad stuff – and it is bad what is emerging from the current enquiry into banks etc., - is not having a huge impact on the Finance Sector Index – the XFJ.
Let’s look at the monthly XFJ:
S&P ASX 200 Financials (XFJ): Monthly Line Chart
Click to Enlarge
The yellow zone to the right-hand side of the chart is the action for most of this year, including the period of the Banking Royal Commission. As it is a monthly chart we are seeing a very concise snapshot. But you can see there has been little real price impact from the banking commission thus far, despite all the disgraceful revelations.
Anecdotally I know of no-one selling their shares. And volume suggests the Instos are still hanging in there. Not because they approve or condone but the sins so far revealed are unlikely to affect the banks’ bottom lines. If the commission was to unearth something that would change fundamentally how the banks really operate then we would see a marked change in direction of share price.
This appears to be unlikely.
Having said that the overall market in Oz and USA are still pointing higher.
It is interesting to note the time zone for the new XFJ high is already ticking over but it still has 18 months to go.
As the chart and Elliott presents currently, it does seem the old high of 2007 is likely to be taken out sometime over the next two - three years.
Normal market behaviour is that when an old high is convincingly taken out it generally gains further momentum and starts a new impulse move higher. A second fifth wave.
Conversely if it pauses and struggles at around the last top, then the probability reverses and the market turns down. This becomes a double top.
The reason I raise these options is that two years out is a long time. The Australian indices have a power of their own but global geo-eco factors can overrule – what I commonly refer to as ‘’X’’ Factors.
So, therefore I am a little hesitant to make a clear call. And I tend not to fixate on a view until it is closer to the time.
Then I must make a call and am comfortable to do so.
Enjoy the ride