Market wrap: Time for a cool head


In the three months between 22 October 2021 and 22 January 2022 Bitcoin crashed over 52 percent in price. Many would consider it alarming if the stock market had a fall of this magnitude over such a short period of time, yet while some were concerned by such a large fall on Bitcoin the majority pretty much ignored it and were treating it as an opportunity to buy more Bitcoin at a cheaper price. But is this really wise?

Due to the significant rise of Bitcoin over the last decade, many are treating it as something that just continues to rise and while this was somewhat true in the earlier days of Bitcoin, it is now not the case anymore. In the 24 days since the low on 22 January, Bitcoin has risen over 40 per cent in price because many have jumped in hoping to grab a bargain. However, they may have jumped in too early given that last week it fell nearly 20 per cent in price. Given this, anyone who bought into Bitcoin in recent times or who has been holding it since January 2021 has either lost or is barely breaking even.

From a technical perspective, Bitcoin is showing signs of further falls and I believe it will not be long before it breaks below the low at 29,455 in July 2021. In fact, there is a good probability that Bitcoin will fall to around 20,000 or below. If this occurs, it means a fall of 45 per cent from its current levels and around 70 per cent from its all-time high. So buying into the recent dip could be an expensive exercise for those who jumped into Bitcoin hoping it would rise strongly.

cochlear wearing woman

The challenge with buying any assets when they dip is knowing whether the dip is just a short term down move, a more sustained correction or a crash like Bitcoin is experiencing, which as I mentioned is likely to continue. Too many times, I have seen traders buying in the dip only for them to left bewildered as they watch their investment fall away considerably. Right now, the best thing to do with Bitcoin is to sit back and wait for the right time to enter. Those who are patient will be handsomely rewarded when it eventually stops falling and starts to rise.

What are the best and worst performing sectors this week?
The best performing sectors include Consumer Staples up over 4 per cent followed by Utilities up over 1 per cent and Energy, which is just in the green for the week. The worst performing sectors include Information Technology down over 9 per cent followed by Consumer Discretionary down over 6 per cent and Materials down over 4 per cent.

The best performers in the S&P/ASX top 100 stocks include Cochlear up over 12 per cent followed by Endeavour Group up over 11 per cent and Northern Star Resources up over 10 per cent. The worst performing stocks include Domino's Pizza down over 20 per cent followed by Reliance Worldwide down over 12 per cent, while Virgin Money and IGO are both down over 10 per cent.

What's next for the Australian share market?
The All-Ordinaries Index has continued to fall away this week and is down over 3 per cent (although the Russia-Ukraine crisis has increased market volatility in the last two days). Despite this, I would urge investors and traders not to get caught up in all the chatter about the market. Currently, it is down around 9 per cent since it achieved a new all-time high in January and I believe we can expect further falls. That said, while it is still possible the All Ordinaries Index could fall below 7,000 points, I don't believe we will have to wait long before the market finds support and starts to rise again.

It is times like these that investors and traders get tested and their emotions can run high, which causes many to make errors in judgment. Now is the time for a cool head rather than chasing the market or looking to grab a quick bargain. Instead, you should be looking for good stocks at better prices when the market does settle.

As I have said previously, I still believe the Australian market will do well in 2022.

For now good luck and good trading.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.