The Tale of Three Charts

By Jason Fittler

The market moved to new lows yesterday, or did it? 

These days we get so much information we are generally overloaded. This leaves us in a position of making poor decisions.  

Take a look at the three below charts. Note all charts are over the same time period, the difference is the index used.

First, a chart of the top twenty companies, these are the big core blue chip shares. Such as BHP, RIO, ANZ, NAB, Wesfarmers etc.

You will note that this chart is moving up. What this is showing us is that people are investing in the big blue chip shares. As such the values of these shares are improving.

Second is a chart over the ASX 200, the top 200 companies. What is clear here is that the market is not moving up but is in fact back down to its lows of November.

Finally we take a look at the All Ords index over 500 companies, here the market closed at a new low yesterday. This chart clearly indicates that the market is moving down. 

What does this mean?

In short it is the smaller stocks which are currently being sold down while the blue chips are holding up well. As the market is not an exact science you need to be able to interpret what is happening and form your own opinion.

I believe that investors are back looking for income as opposed to growth. The blue chip stocks have a long history of providing good income and keeping debt levels low. I expect to see blue chip stocks continue to rise in the coming year. I also expect that highly geared stocks and any stocks cutting dividends to continue to fall.

I will continue to buy the blue chips and hold for the income, at some point in the future we will look back and point to the low, but unless you have invested it will do you little good.

From the above charts the smart money believes that there is still good value in the blue chip shares.

I will be following the smart money.