Is the S&P/ASX 200 Index (ASX: XJO) still stuck in a rut?
Exactly a month ago, I penned an article in which I described how the ASX 200 was stuck in a rut. I noted how, for two months, the ASX 200 had essentially gone nowhere. It has ebbed and flowed around the 6,000 point level, but never left the safety of this band for long. This pattern held true after the ASX 200 initially leapt out of the ditch that the March share market crash put it in, rising from 4,546 points on 23 March to 6,000 by 5 June. But from 5 June to 11 August, we essentially didn’t move away from this level, at least not for long. It seemed to be a classic case of ‘mean reversion’.
So, one month later, how have things progressed?
Well, they haven’t. The ASX 200 has not yet shown it can break away from 6,000 points. We nearly saw it last week, when the ASX 200 touched above 6,100 points. But today, it stood at 5,859.40 points by close of trading. Since ASX 200 shares have lost over 4% since 3 September, I would say we’re actually in danger of breaking out of this rut in the wrong direction. With all of the hoopla of August earnings season behind us now, we are still stuck in the mud.
So what does this strange phenomenon tell us?
The ASX 200: All revved up with no place to go
In my opinion, it tells us that ASX investors are waiting for something to give direction to the markets. Apparently earnings season wasn’t enough. Perhaps investors are waiting until the United States presidential election in early November. Perhaps they are waiting until the impact of the government wind-down in support payments on the economy becomes clearer.
I don’t know. All I know is that we are seeing this pattern play out.
So, how does one invest in this strange environment?
Well, I think ‘sticking to the plan’ is the best way forward. ASX 200 shares will go up in the future, and they will go down. There will be more booms and more crashes down the road. We just don’t know when either will come. If you stick to investing in companies you like, that are top quality, that aren’t too expensive and have good growth prospects in these uncertain times, I think you’ll be just fine.
And if you’re feeling queasy about where the markets are today, the best thing you can do (in my view) is build a small cash position in case your fears come to pass.