Trading Day: game over

The S&P/ASX 200 opened down sharply reacting in line with overnight markets which were all down 1 to 1.5%, reversing yesterday’s gains. At just after midday, the index has lost just over 60 points or 1.31% down to 4510.

Asian markets are similarly effected, with the Nikkei down 1.1%, the Hang Seng down 1.4% and Singapore just under 1%.

Other risk assets are mixed, but the AUD has dropped over 1 cent and is now 1.0576 against the USD, gold up slightly to $1526 USD an ounce. WTI crude has been caned, now at $95.36 USD per barrel.

Movers and Shakers
It’s red across the board, with banks and resources all down strongly. CBA is down 1.14% to just below $50, ANZ down 1.6%, WBC down a large 1.71% and NAB down almost 1 percent. BHP has been hit strongly, down 1.4% with RIO suffering similar losses, both now at 2 year lows.

In other ASX200 stocks, its pretty grim with only Rock Oil (ROC) up 3% and Sigma Pharma (SIP) up just over 2%. The smaller resource stocks are getting smashed: Murchison Metals (MMX) down over 8%, Aquarius Platinum (AQP) down 6.4% and so on. Not a good day to be long resources.

ASX200 now below critical support
The market is now teetering below the Japanese earthquake lows at just above 4500 points – what today and this week’s close brings in will support market direction for the rest of the financial year (and calendar year probably).

A break below this level will extend the correction, with the next target at 4200 points – the lows in the May flash crash of 2010. Only a breakout above 4620-4650 points in the coming week or two would confirm a rebound in stocks, and at this point, with all macroeconomic data around the world pointing to slowdowns, deceleration or outright recession, it will likely be an impulse (short covering) rally at best.

Daily Chart
The daily chart shows how the current price activity has broken below the low point of the Japanese/MENA lows of March. This break of support is very bearish in the short term.

Daily chart of ASX200 - support at 4500 appears broken

Weekly Chart
The weekly chart shows the QE2 induced rally is well over and current prices are below the mid-point of control (4600 points) that has been in place for almost 2 years (look to the left – notice how the triple top pattern oscillates its mid point around 4600). Three consecutive weeks below this point is extremely bearish and adds weight to the probability that prices will continue to fall to the next support level at 4200 points.

ASX200 weekly chart - market appears to be have lost its way....

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  1. And we are still awaiting what pans out in Greece…

    Although I have been of the opinion for many months that default is the only real way out of that mess (and likely into a bigger one for the rest of us).

    Interesting times indeed.

  2. That’s a scary looking drop we’re staring down the barrel of, but the fall we’ve seen (and yet to occur) was not unexpected. We’ve all had plenty of time to prepare for the end of QE2 and is the worsening situation in Greece a surprise to anyone here?

    • Not really BB, but there was a lot of “This time is different” thrown about…

      I would not be surprised if we see an impulse rally/dead cat bounce however.

      The charts are looking like 2007 all over again.

      Gold is being resilient however – I’ll have to have a closer look, particularly its lessening correlation with USD.

    • You’re absolutely right, BB. This market was a crash looking for a trigger. Dark clouds over the four biggest economies in the world, withdrawal of simulus everyhere, too much inflation for immediate QE. God amlighty, was there ever a more telegraphed correction than this one?

    • But will it continue H&H?

      Or will it repeat the May 2010 correction and we get some milky wilkies?

      Is the inflation spectre too high for the milkvan to ignore?

    • I think there are good odds that the market will react to any milky wilkies with an accelerated sell off.

      “wow, things MUST be as bad as we feared. QE 1 & 2 obviously didn’t work, so why would QE 3??? Time to bail!!”

    • recession and 4,000 – 4,200 is my guess. I’ll be lurking patiently for some buying opportunities πŸ™‚

  3. Agree with the “game over” title.

    Crystal ball gazing is closely akin to pure guesswork, but it’s fun, so here goes.

    4500 was stubborn, so now it’s been breached, there’s high odds of some panic selling for a couple of weeks.

    Then I see a bit of a bounce or sideways for several weeks or a couple of months.

    After that, the real fun starts, as we enter the traditional panic season of September and early October.

    • I was going to call it “game over man, game over” from Aliens….remember that line?

      Its not looking good – XJO is at 4489. Has another 5 points before it closes below the Japanese intra-week low.

      My long term system is pointing towards a possible “FOG Correction” – but momentum isn’t that sharp yet, so it is likely to fall into the “sideways” camp more than anything.

      (FOG – fist of angry god i.e my response using up to 20% of capital to short the sh%t out of the market)

      • It doesn’t happen often (FOG) but when it does…..

        I’m not sure we’ll get a FOG correction, more of a sliding down (with negative momentum between 0 and 10%) over the coming months, with some counter rallies/dead cat bounces thrown in the mix.

        Commodities looks like the place to be in terms of getting better “FOG” returns – they haven’t retraced as much as equities yet (h/t H&H) – I’ll post on this later.

        Copper is only 10% off its high, and has 25-30% to fall to pre QE2 prices.

        EUR/USD – h/t Avid Chartist – is also a prime candidate for bigger shorting opportunities than equities.

    • FOG – I’ll remember that one.

      Yesterday’s Head and Shoulders top set up on the EUR/USD triggered my equivalent to FOG, working a treat so far.

  4. The AUD vs all currencies still holds its ground especially after such a decent correction over the last 2 months.

    I guess the Aussie market in USD has performed quite well over the previous 12 months. So we are just getting used to a stronger AUD for what could be a very very long time.

      • re: AUD/CHF getting smashed….Interesting – by how much?

        And what of the relative CHF vs gold movements?

        ..i’m interested to see to what degree gold is finding itself as more and more a safe-haven/reserve in light of recent developments….


  5. I’m wondering of Oakajee is effecting some of the mid west miners. Red ink all round of course but the Oakajee connected miners seem to be getting especially hammered recently.

    The WA government needs to extract a digit and take steps to get the project back on track.

  6. ceteris paribus

    Congrats and thank you for the data and clear graphs. The breakout below 4500 may well be a critical tipping point.

  7. I was expecting QE3 to follow closely behind…followed by 4 etc. To my great regret I’m wrong! If they leave QE3 for any amount of time and everything slides before they bring it on I doubt that any other than turning the USD into confetti will do much good. That’s why I thought they couldn’t afford to wait!
    The steam roller, after many years of moving much slower than I thought it would, is now starting to run faster.