How to Cut Through Market Noise and Make Better Trading Decisions

I am sure I am not alone in saying that the internet has created a double edged sword, as it can be incredibly useful while also being incredibly dangerous. When it comes to the stock market, it is definitely a double edged sword, as it has increased access to investments, reduced costs and allowed us to do our own research. On the flip side, however, it causes overwhelm, confusion and emotional trading decisions based on the proliferation of market noise.

Over the past week alone I have read articles on the “wall of worry”, claims that the US market is over heated and will crash, and allegations that the coronavirus is causing stock markets around the world to fall. But events like the coronavirus generally have little or nothing to do with the market rising or falling. What they do represent is an opportunity for the big end of town to use these events to create emotions in the market to force it either higher or lower. That said, it is typically on the downside as bad news sells but it also allows those influencing the market to get into stocks at cheaper prices.

Markets will always do what they will do, and that is to rise and fall over time as world economies ebb and flow. One off events are just a small speed hump in a very long journey, and while they may slow things down for a short period, they will not stop the market doing what it was going to do.

For those of you who have read or listened to my previous reports, you will know that I have been expecting the market to find a high and fall into mid-February, which is what it is doing despite the coronavirus. Given this, I would encourage investors to spend less time focusing on stock market noise and more time looking at the bigger picture. If investors were to do this, they would make far less emotional decisions, have less stress and make more money.

What are the best and worst performing Australian sectors?

Despite a very volatile week, the news was not all bad as Healthcare and Financials were slightly in positive territory while Utilities and Communication Services were only slightly in the red. As for the worst performing sectors, Materials was down over 3 per cent, as BHP and RIO fell heavily. Energy was also down over 3 per cent with Consumer Staples not far behind, down just under 3 per cent.

Looking at the ASX top 100 stocks, the best performers included Virgin Money up nearly 6 per cent and over 70 per cent since October last year. TPG was also looking good up over 5 per cent and Janus Henderson was up over 4.5 per cent. The worst performers included Treasury Wine Estates, which fell heavily and was down over 21 per cent after a profit downgrade. Fortescue was hardest hit in the Materials sector and as it was down over 9 per cent while Oil Search and The Start Entertainment Group were both down over 6 per cent.
So what's next for the Australian share market?

It looks as though the start of the down move I was expecting was confirmed last week but before you get too worried, let me say that it will only be short lived. I expect the market to fall into mid-February to below 6,900 points, although I am prepared for it to fall as much as 8 to 12 per cent from the recent high. If this occurs, the All Ordinaries Index could fall over the next eight weeks to just below 6,400 points.

Again, I want to remind everyone that this is a normal market movement and after the low we will see the All Ordinaries Index return to being bullish in 2020, with my target around 7,600 points or above.

Good luck and good trading.

By Dale Gillham, chief analyst Wealth Within
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