Earlier this year there was quite a bit of excitement amongst many market watchers as the S&P/ASX 200 had settled above 6000 after a rallying from just over 5,500 in October 2017. The mainstream finance media were as usual generating click-bait content that conveyed the impression that the market was in the midst of an almost unstoppable rally. However I wasn’t convinced that the Austrlaian stock market was set to finally get back to the level it was 10 years ago and for the last few months I have been just watching the market basically go nowhere.
In January I wrote:
I am inclined to be a seller and not a buyer. I reckon there will be another opportunity to get into the market below 6000 during 2018 and maybe even near 5500. Within the ASX 200 range of stocks both resources and the financials related stocks appear to have run up a little too far although over the longer term I am positive on stocks that have exposure to oil and soft commodities (such as wheat, soybeans, sugar, beef).
Well ASX 200 didn’t fall all the way back to 5500 but bit did fall in February from around 6,100 to around 5,800 and since then it’s rallied again and now, is falling again. In net terms however, so far this year the S&P/ASX 200 & ASX All Ordinaries (All Ords) have basically just moved sideways.
That’s not to say all stocks, funds and ETF’s have moved sideways. As always there are pockets of opportunity and peril within the markets and to illustrate that point we can look at oil and two blue-chip stocks. Regarding oil I will refer to the chart of the ASX listed ETF Crude Oil Index (AX:OOO).
Crude Oil ETF (ASX:OOO) 3 year price chart
I have previously written about oil prices and to summarize, my view is that the cuts in exploration budgets made a few years ago will lead to higher oil prices over the next few years. It has taken a while for the oil prices to get back above US$60 a barrel but it seems settled there now and will probably move towards $100 over the next few years. Maybe that doesn’t sound very exciting but as can be seen from the chart of the Crude Oil ETF above there is plenty of scope for units in that ETF to rise as it appears to be currently lagging the oil price. However it’s a little tricky as this ETF is currency-hedged, but over the next few years I don’t think it’s unreasonable for this ETF to be trading around $40 per unit. But as always, please do your own research and note that I am not a financial advisor and have no desire to ever be one.
Another opportunity that has recently come into view is Telstra (AX:TLS). Now to keep this very simple and avoid a lot of jargon and talk about return on equity etc. let me just say that over the longer term, I think Telstra will turn out to be a good buy at around the price it is trading now. This doesn’t mean that the Telstra share price won’t fall further but if the company can maintain a yield of say 5% and the share price in say 3 years time is $3.50, then it will turn into a fairly good investment.
Telstra Coporation Ltd 10 year stock price chart 
As can be seen from the chart above, the Telstra share price is down around a decade low and I think people are underestimating how 5G mobile will help the company and overestimating the threat from NBN Co. By the way for those interested I wrote back in 2009 that the National Broadband Network would be rolled out late, over-budget and would struggle to make money. Some people said I was made, but it’s turned out worse than even I thought. (From 2009: The national broadband debacle: all hail to Senator Conroy)
One Australian blue chip stock that has done well whilst many other financials have struggled is Macquarie Group (AX:MQG). It has now moved past its pre-GFC high (when it was Macquarie Bank) and is well clear of $100 per share. But it looks at little pricey to me at the moment although the P/E ratio is only around 16 and it does pay a fairly good dividend.
Macquarie Group Limited (ASX:MQG) xx year stock price chart
Lastly let’s have a quick look at a chart of the ASX 200 Index over the last 6 months.
S&P/ASX 200 Index (XJO) 6 month chart chart
As we can see from the ASX 200 6 month chart the index has moved around between 5700 – 6100. My view is that the ASX 200 is unlikely to pass 6,500 this year and with house prices softening, I doubt that it will rally much further from this point during 2018. We may seen another rally towards 6,100 and perhaps a little beyond that, but I am generally bearish on ASX listed companies focused on the domestic market unless they have been perhaps oversold as might be the case with Telstra for example.