In recent weeks we have seen an increase in media coverage of the resources sector, mainly associated with the debate around the resources boom. Is it over, or are we just seeing a pause in the ‘super cycle’ ? The debate has been fierce and at times hotly contested as those on both sides of the argument quote all sorts of facts and figures in support of their respective arguments.
The media abounds with any amount of information in support of whichever side of the fence the author is sitting. The bulls who argue that the commodity super cycle is entrenched and will last for years to come, and the bears who quote the slowing in new project development and the slowing Chinese economy in support of their argument. Both could be correct. Maybe the operational side of the resource sector has slowed down but the capital investment cycle in building new resource projects is steaming ahead. What will this do to resource stocks prices?
Does any of this banter really matter? Maybe it is just loud clanging noise. For those with a disciplined approach to investment, who base their decision making on the technical analysis of price action, with clear and concise rules, the conjecture of analysts, experts, and commentators really is of no use. The ‘talking heads’ can speculate and contemplate all they like. Our job is to adhere to the rules of our strategy and respond to the information displayed in our price charts, rather than being drawn into any level of irrational debate about what we ‘think’ might happen.
The chart of the S&P/ASX 200 Materials index below provides a simple picture of what is happening in the resources sector – it has been in a clear downtrend since May 2011 and has been underperforming the All Ordinaries Index since August 2011, but recently momentum started shifting and SPA3 has signalled LOW risk for the Materials sector. Could this be the start of another run? Whilst there are no guarantees, such signals have a researched edge that put the investing probabilities in favour of the active investor.
Clearly, our response to any debate about any share or sector of the market needs only relate to the information displayed in our charts and the signals generated by our mechanical system. Price discounts all known and unknown (to the investor) information and reflects the net sentiment of all investors regardless of the news, or as we call it, the “noise”. We can leave the debates and prophesying to the so-called experts while we get on with the business of managing our money with a professional and disciplined approach that doesn’t need to rely on an emotional attachment, “noise”, a need to massage our ego or a need to have certainty about the future.