Put hold on buying up shares in banks

BANK shares have been declining, so is now the time to buy?

With the royal commission investigating bank misconduct, questions have been raised by investors about picking up banks cheap.

Major changes are expected in the banking industry, with the vertical integration structure being picked apart.

This has seen major bank asset sales proposed for the big four, with CBA and NAB electing to sell their financial advice services. And, we are yet to see the full extent of the fallout.

There is a common misconception that buying a stock when it seems cheap is good buying, however, this could not be further from the truth.

Holding an investment while it is declining is not smart investing. There is a reason a company’s stock price is falling. So why would you invest your hard-earned money into something when others are selling? And if banks are falling, it means the big funds are selling them.

Buying something that could continue to fall is dumb, as you can buy at a much safer time to generate a good return.

What you want to do is wait for confirmation the shares have stopped falling, which has not yet happened. To do this, you simply need a ruler and a pencil. I’ve been teaching traders and investors how you will identify safer times to buy.

What do we expect in the market?

This week the All Ordinaries Index (XAO) traded to about 6200 points, which is important.

The broader market index has gained more than half of what it lost when it fell from 6256 points in January to 5834 in April.

The XAO continued higher this week, rising for a fourth consecutive week. This move reduces the risk of a fall below 5850 points. That said, I would like to see the market pull back for a week or two towards the end of May or early June to test support. Dale Gillham is chief analyst at Wealth Within