Stock Market Lesson 5082

The ABS reported that during February, the Australian economy created 71,500 jobs. 17,800 of those jobs were full-time, with the rest being part-time.

It was a massive number and well-above estimates of an 8,000 job gain. However you should take it with a grain of salt. To understand why, read this. It has to do with the sampling methods undertaken by the ABS.

In other words, the jobs growth figure for February was vastly overstated. But the market saw the headline number yesterday and panicked. It equated stronger-than-expected employment growth with potential interest rate rises. That means the whole search for yield thing that has being going on for the past few months was suddenly brought into question.

Which is why the banks suffered a rare sell-off yesterday. The threat of rising interest rates is like kryptonite to a sector that benefits from everyone thinking its dividend yield is the equivalent to the risk free rate. It’s not. And when the stock market is good and ready to hand out a lesson, that reality will prove painfully obvious.

But the market doesn’t appear good and ready to do anything yet other than offer the promise of reward for no risk. After yesterday’s nervous wobble, it’s trying to regain ground today.

We asked Murray Dawes what he made of today’s rebound. He reckons the ASX200 is trading right around a critical juncture. In short, it’s right on the 10-day moving average (the beige line in the chart below) which is 5,082 points.

Keep an Eye on 5,082


A close below that level today means you should expect further falls next week. If the index manages to close above 5,082, we could have another short term move higher.

It’s high tension out there for the traders. Over in the US, the Dow just experienced its 10th consecutive daily rise, a record not bettered since 1996. Can it keep going, or is the elastic band fully stretched?

It seems to us like a pullback is due. At the very least, a correction of 5-10% seems like a given. But maybe the market is not yet done sucking investors in. Maybe we get another leg up, another new high and more optimism about new bull markets.

Maybe then the stock market will start its lesson in earnest.

Greg Canavan
for Markets and Money

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Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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