High volatility could spell opportunity

With all the noise in the past month around the Banking Royal Commission’s final report, reporting season for ASX listed companies has taken a back seat.

Resmed (ASX:RMD) was first off the line and it was punished heavily after releasing its report on 24 January.

At one stage Resmed was down 23%, which provided an opportunity to get into a great stock at a cheaper price. It has since traded up 11% and looks set to continue to rise.

Reporting will continue for another week. As it does, more opportunities will arise in the market given that we are seeing a trend whereby announcements cause high volatility, especially to the downside. But with the right stock, like Resmed, this can spell opportunity.

The most notable report this week was AMP.

On Valentines Day, AMP Ltd (ASX:AMP) reported a 97% drop in its full year profit and, as you can guess, there was no love from the market after that, as sellers punished the stock pushing its share price down around 10% before closing the day down 7.85%.

Rather than being an opportunity, AMP is currently one to avoid as it is trading at its lowest levels since it floated over 20 years ago, and unless something changes, further downside is likely.

AMP is a big elephant and as we know they move slowly, and, as such, it is not adapting to the new financial environment fast enough. Right now, the jury is still out on the banks, given that after last week’s strong rise, all are down this week, which indicates that they may not be ready to start their next big move up just yet.

As I have mentioned previously, we will need to see the dust settle before making a decision to purchase the banks, and the next month will give us the answers we need.

This week the smaller end of the market has done well with the Small Ordinaries (XSO) and Emerging Companies (XEC) indices rising around 2%, while the top end has fallen with the S&P Top 20 (XTL) falling around 1%. The best sectors have been Energy up over 4%, Materials up over 3% and Information Technology up around 2.5%. The worst performers were the Financials, Communication Services and Healthcare sectors, all down over 2%.

The best stocks in the top 100 this week were Cleanaway Waste Management (ASX:CWY), who after reporting this week, rose over 17%. Northern Star Resources (ASX:NST) is up over 13% and Magellan Financial Group (ASX:MFG), who also reported this week, are up over 10%.

The worst performers were Bendigo Adelaide Bank down over 11.5%, Spark Infrastructure down over 10% and Unibail-Rodamco-Westfield, down over 8%.

So what do we expect in the market?

The market experienced heavy resistance around 6,200, which is a level we have been watching for a couple of years as one that could halt the rise of the market.

For the past five trading days, the All Ordinaries Index has simply traded sideways, indicating there is indecision in the market.

In the short term, I expect a pullback over one to two weeks to below 6,000 points and possibly to 5,800 points. If the market can hold above these levels and start to rise again, we will see the beginning of the next move up to challenge the all-time high of 6,873 points set in 2007.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online at www.wealthwithin.com.au