Market holds above 6000 points – will we scale the pre-GFC high of 6828?

ASX 200 above 6000 points pre GFC high Australia stock market

Well it has finally happened with the ASX 200 closing decisively above 6000 points not once but twice this week.

As I mentioned on October 14 when I asked the question of whether the market was heading for 6000, this magic mark has been a long time coming.

We first breached the 6000 point barrier way back on February 15 in 2007 and that was followed by a rapid acceleration all the way to the market peak of 6828.7 which was hit in November of the same year. (note that the intraday high was 6851 points)

Since then we have endured the GFC, the end of the mining boom (and, arguably, the start of the next one) and some extraordinary stimulus in the form of government spending and record low interest rates.

For much of that time it all seemed to be for no avail – after slumping as low as 3145 points in March 2009, the Australian market has been largely range-bound.

It tracked up and down between 4000 and 5000 from July 2009 to July 2013 and since then has oscillated between 5000 and 6000.

ASX 200 Australian stock market 10 November 2017
ASX 200 chart from pre-GFC highs to today.

Now above 6000, the final climb to the pre-GFC peak of 6828.7 could take some time (if ever) as the consensus forward price earnings multiple at the moment of 16.5 times is quite expensive compared to a long run average closer to 14.4 times.

Investors will be looking to see if earnings growth can shrink that multiple back a little so that there is more than simple copycat market euphoria to explain rising share prices.

Australia has the added burden of a fairly indebted household sector, which is expected to act as a brake on consumer spending for a long time.

The rapid turn in markets can really be tracked back to the day Donald Trump was elected just over a year ago.

That was a chaotic day on world markets with an initial slump on the futures market followed by a rapid reversal as soon as Trump began his victory speech.

Since then it has largely been one way upwards traffic in the US with the rest of the world’s markets following along behind.

Volatility has been extremely low, corporate earnings have broadly been recovering, oil prices have firmed to a two year record and there is a clear sign that the animal spirits that drive markets and have been missing in action since the GFC struck have returned with a vengeance.

Even Japan, a market that has been stuck in the deep freeze for decades, is showing signs of strong growth as corporate earnings finally recover and understandably punch drunk finally investors move back into the market from the sidelines.

Weekly small cap stocks in review

It’s been an eventful week in the small cap space, let’s take a look at some notable mentions.

Cannabis stocks doing well

It has been another eventful week for small cap stocks, with the burgeoning number of cannabis companies largely enjoying good performances.

With more than 20 stocks with cannabis assets at various stages of development, Australia has become one of the global centres of excellence researching new products and medical treatments from the once banned cannabis plant.

It was also a good week for lithium stocks which have been in demand as the ramifications of the new battery technology and electric cars begin to sink in.

Argosy Minerals (ASX: AGY)

Argosy Minerals this week reported it is on track to produce its first battery grade lithium carbonate equivalent product from its Rincon project by the end of March 2018.

The Rincon project is in Argentina’s so called lithium triangle and the pilot plant will be able to produce up to 500 tonnes of lithium carbonate equivalent annually for the battery market.

Solar evaporation ponds are almost finished and a production well has been drilled and will be used to pump the lithium brine into the ponds.

Following solar evaporation the brine concentrate will be processed at the pilot plant into a battery grade lithium carbonate equivalent.

Golden Mile Resources (ASX: G88)

Also rising on the battery boom is Golden Mile Resources, which traded above its float price after announcing the discovery of “extensive nickel-cobalt rich” mineralisation at its Quicksilver project in Western Australia.

Both nickel and cobalt are in demand for lithium batteries, with nickel in particular enjoying a recent price recovery as it appears likely to make up more of lithium car batteries than previously assumed.

Golden Mile’s project in WA’s south west mineral field has been a happy hunting ground for a variety of minerals and hosts the Boddington gold mine, Capel mineral sands operations, Greenbushes lithium-tin-tantalum, and Darling Scarp bauxite-alumina.

G88 finished Friday’s trading session up a stellar 150%.

Empire Resources (ASX: ERL)

Production oriented gold miner Empire Resources announced some excellent gold grades from diamond drilling underneath its operating Penny’s Find mine near Kalgoorlie in WA.

Gold grades of up to 15.60 grams per tonne (g/t) were found in the potential underground extension of the mine, improving the odds of a thumbs up eventuating from a final underground feasibility study.

Australian Mines (ASX: AUZ)

Australian Mines enjoyed a very successful capital raising, collecting $20 million to advance its cobalt and nickel projects – double what it had asked for.

Fund managers applied for almost $40 million but the company settled on $20 million which saw 235 million new ordinary shares issued at $0.085 each.

Australian Mines is edging into electric vehicle, consumer electronic and sustainable energy markets by exploring and developing its cobalt-nickel-scandium projects in Queensland and New South Wales.

Its Sconi Project is about 250km from Townsville in northern Queensland, placing it near port, roads, electricity, housing, skilled workforce, water and telecommunications infrastructure.

The project has a maiden resource of 89 million tonnes and a minimum 20-year mine life.

A bankable feasibility study is due to finish in April next year and an earlier pre-feasibility study found Sconi could produce 24,000 tonnes of nickel sulphate and 3,000 tonnes of cobalt sulphate a year.

Byte Power Group (ASX: BPG)

Hopeful cryptocurrency exchange company Byte Power had a massive week with its shares soaring up to ten times in a couple of days before the ASX moved in to suspend trade pending an investigation.

It seems the hype around cryptocurrencies really resonated with investors given Byte’s plans to set up a cryptocurrency exchange in Brisbane for non-technical users.

It is claimed the exchange would easily convert traded cryptocurrencies such as Bitcoin, Ethereum and Soar Coins to Australian dollars.

Initial testing of the exchange is planned before the end of the year and it will be interesting to see what the ASX makes of the eye-popping boom time trading.

Dotz Nano (ASX: DTZ)

Dotz Nano announced its first major sales order worth $135,000 for its graphene quantum dots which are used for anti-counterfeiting and optical brighteners.

The microscopic dots fluoresce when exposed to UV light, with the light show able to change colour if different sized dots are used.

Dotz is making the graphene quantum dots from coal for several industries including medical imaging, sensing, energy and data storage, solar cells, consumer electronics, optical brighteners and anti-counterfeiting.

Under the sales agreement, Dotz will supply liquid and powdered dots to Japanese and Asian companies for use in dyes for the anti-counterfeiting market and as an optical brightener for polymers.

Wangle Technologies (ASX: WGL)

Online child protection software developer Wangle Technologies is about to expand availability of its Wangle Family Insites software to android devices.

Already available on the Apple store, the Android app version will be available any day after some final bug fixes are applied.

Sold as a family subscription payable monthly or yearly, Wangle analyses live mobile network traffic across the company’s VPN and alerts parents to potentially “risky” online behaviour such as gaming addiction, cyber bullying, sexting, pornography and sexual predators.

Additionally, Wangle Family Insites incorporates educational resources for parents to help them better-handle risky situations when they arise.

Early engagement statistics since the software suite was unveiled include 20,000 active onsite users and 400 active Wangle Family Insites users.

According to Wangle Technologies, its child protection software is unlike other products which simply “block” or “spy” on children’s online behaviour.

It uses research and behavioural insights combined with network and GPS meta-data, to monitor real-time activity and communicate risks to parents while providing educational resources.

Fluence Corporation (ASX: FLC)

Fluence Corporation announced a binding agreement with China’s Qingshiuyuan Environmental Company to build and operate a containerised wastewater treatment plant in Henan Province.

The plant uses MABR (self-respiring membrane aerated biofilm) reactors to treat sewage locally and provide water for reuse in a highly efficient and scalable containerised package.

The process uses up to 90 per cent less energy than normal methods and Fluence will now supply, build and operate a 300,000 litre per day containerised MABR plant in Luoyang City in the Henan Province.

The system is expected to start operating next month.

The Week Ahead

It is a reasonably busy week coming up for economic releases with Australian labour market numbers for employment and wages and also some releases on credit and debit card lending and consumer sentiment.

Also potentially market moving are the Chinese monthly activity numbers on Tuesday and a heap of core US releases including inflation, retail sales, industrial production and the housing market.

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