Yahoo has Stockmarket data for the Australian All Ordinaries since 1984. I have used that data to compare stock market recoveries from market bottoms since the deep, short, dramatic crash of 1987.
On fundamentals Australia did not have a housing collapse or oversupply, had no or a very short shallow recession, has little in the way of unprovisioned bank credit losses and has relatively small unemployment, largely due to stimulus which flowed to the firms and workers in the construction industry. There is high private debt to GDP, but extremely low Government debt to GDP. The deficit is moderate compared to developed other countries. Australia issues its own currency. Some say Australia still has a housing bubble. In 2009 Australia had one of the best performing stock markets in the world in both USD and EUR terms.
Where we are - 310 of 350 days
First 350 days of Australian All Ordinaries Recoveries - Click for large image
The current (bright blue) recovery was much faster for 160 days but is now back to average (bright orange) values. Only the recovery from 2003 was higher after 310 days, so this recovery is still ahead of 4 out of 5 other recoveries.
Where we are going - looking to 1200 days
Australian All Ordinaries Recoveries - First 1200 Days - Click for large image.
The Average recovery falls away from +38% at day 310 and does not recover to current levels of +40%) until about day 450. The Average recovery does not break up from +40% until about day 560.
The Average balances the 1987 recovery which fell back to only +4.6% at day 800 (the 1991 low) against the 2003 and 1991 recoveries which each reached +94% at day 780. Other than 2003, all recoveries shown went to a significantly lower point by between day 350 and day 460.
In addition to the 1987 recovery major bottom at day 800 (1991 low) (described above):
* 1987 fell from +44% at day 186 to +24% at day 356 (14% fall) 1989 low)
* 1991 fell from +40% at day 210 to only +13% at day 468 (19.5% fall) (1992 low)
* 1992 fell from +71% at day 310 (same as where we are now) to +35% at day 529 ( 21% fall) (1995 low)
* 1995 had a correction from +26% at day 273 to +15% at day 364 (8.7% fall) (1996 low)
* 2003 eventually had a small correction from +58 at day 515 to plus +47 at day 554 (7% fall).
The outlook for the period out another 200 days to day 510 is for a real risk of a major (new or continuing) correction in the Australian broad indices.
The current downturn has been very sharp compared to other major downturns.
Short Term Action
I am, after considering all of the above, watching the 10 and 15 day simple moving averages for a buy signal as There may well be medium term (within the context of 2 to 6 year cycles) rallies before any new, if any, low is reached.
Other Major Markets
Most other major stock markets are below their 200 day simple moving averages. This is generally regarded as an indicator that a major downtrend has commenced, more so if it is on a month end or if it is held for say 5 to 10 trading days. However in a volatile mainly cross trending market it is unreliable, leading to expensive whipsawing as in the Australian All Ordinaries from 1998 to 2003.
* Doug Short for his similar charts on the US market http://dshort.com/articles/2010/sixteen-dow-recoveries.html
* John Hussman for his current newsletter about Aunt Minnie and the risks to the market in the near to medium term. http://www.hussmanfunds.com/wmc/wmc100524.htm
Multi national bond fund about 80%, mix of share funds about 20%; real estate
Currency exposure (not including real estate): 80% AUD, 20% other currency denominated.
Themes for seeking Alpha: Australia, Global markets Stocks: EWA, KROO
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