Trading Day: 11th July

The S&P/ASX 200 slumped on the open, digesting the very poor US unemployment numbers on Friday, and the carbon pricing announcement yesterday. The market is now 1.3% or 60 points lower just after midday.

Other Asian markets have smaller losses, with the Nikkei 225 down 0.5% at 10089 points, and the Hang Seng up down 0.9% at 22,519 points.

Other risk assets are mixed, with the AUD falling almost 0.5% at 1.0705 against the USD, whilst gold shoots higher to $1544 USD an ounce. WTI crude is down slightly to $95.92 USD per barrel.

Movers and Shakers
It’s red across the board. Obviously, the miners and resource/energy stocks are leading the charge, with the four major banks tripping up over some weak lending numbers. CBA and NAB are down 1.3%, whilst ANZ and WBC are down further, 1.5% and 2.3% respectively.

BHP is now down 1.6%, at $44.24 and RIO also down 1.2% at $83.33

Its a quiet up-day for other ASX200 stocks, with only EWC powering ahead, up 2%, but outside the too-followed index (there are better companies outside the top 200 folks!) the renewable energy companies are on a tear. Some of the “hotties” I mentioned this morning: Dyesol (DYE) is up 8%, Petratherm (PTR) is up 15% and Geodynamics (GDY) is up a staggering 28%

The biggest losers include most of the resource sector, suffering losses between 3-6%. Not a good day to be long resources or non-renewable energy (but probably a good day for Coalition pollers).

Daily Chart
The daily chart shows today’s reversal has seriously arrested the previous week rally – now back to resistance at or about 4600 points. It’s basically a crap game in the short run, but probably a slow sluggish sideways move in the medium to long term.

6 month daily chart of ASX200 - click to enlarge

My long term system is still displaying “don’t go long here” signals until we surpass the 4700 point level, which the market wants to gravitate towards but has little chance of doing so now with the carbon price cost sentiment (even if the actual cost to Australian companies is probably less than 1 cent rise in the AUD vs the USD).

As I’ve said countless times before, fundamentals don’t drive markets – its the perception of the fundamentals and the sentiment that creates that moves prices.

Comments

  1. Prince, I agree with your “don’t go here” long term picture. I haven’t posted anything here about the ASX 200 in the past couple of weeks, as I was waiting to see how the rally unfolded.

    The market is now at a point where last week’s low looks key. The ASX 200 is currently trading between two big trend lines on the weekly chart… I think a move below last week’s low, anytime soon, would confirm a down trend on the weekly charts, suggesting further weakness in coming months.

    Also the ASX 200 has traded mostly within a very clear down trend channel on the hourly chart since the April peak. Worth keeping an eye on.

    Piccies here:

    http://www.avidchartist.com/2011/07/asx-spi-200-weekly-chart-trend-line.html

  2. With so many possible threats to earnings growth on the horizon, it is just really hard to justify buying equities. The yields are not as high as they need to be and not as safe as as they need to be to justify switching from cash to stocks.

    It would be different if there were clear signs that stable growth is on the way back. Given the market is still pricing some growth, if it turns out that these expectations are over-done, the market will certainly retreat. Until the growth picture clears, there can be no reason to bid prices higher, and the market will remain in a wait-and-see mode.

    • Personally i’m holding a high % of cash (currently about 30% of my total portfolio) and using that to buy stocks that have been hammered at points where i think there will be upside. Eg. recently KAR in the $4.80-$4.90 range, which has now bounced back to $5.60-$5.70 range in about a week.

      i also prefer to take profits on stocks that have run up a bit which replenishes my cash each time i think something is worth taking a position in (not often lately).

      In a nutshell, take profit, high cash to take advantage of buying opportunities as they present in a volatile market.

    • 30% cash isn’t that high JC.

      I have over 60% cash in my self managed super (it would normally be 80% plus, but I’m trading renewables at the moment), over 30% in my investment company, and sometimes I’m 100% cash for my trading (not currently, but I’m well over 50% cash, but then again, I usually employ 90 to 97% LVR’s…..)

      You can use an ATR band or multiple to sell into those run-ups (I usually sell 1/3rd of my position on a band violation).

      • i don’t trade heavily…..at least i didn’t. Most of the 70% invested is in blue chips i picked up dirt cheap during the depths of the GFC when the market was sub 3400 (i managed to snap up some WES @ $15.00, FMG @ $1.90 and BHP @ $25.00 etc etc when the market was getting thumped), so my incentive to sell them hasn’t been very high. Stocks iv’e purchased once the market pushed above 4300-4400 i have been taking profits on quickly and waiting for the next idea. I’m pretty vanilla with my trading.

  3. A slow sluggish move indeed. What I wonder is whether today’s fall may signal a newer, even lower level of resistance that will have to be encountered. The bearish-engulfing candlestick looks mighty strong.

  4. NY futures look pretty discouraging today. Then again, there is nothing to be cheerful about. There is no systemic growth impulse anywhere at the moment. The US is stagnating, Europe as a whole is spluttering while Japan relies on external demand.

    Meanwhile, Chinese stats – to the extent they can be relied on at all – suggest that domestic demand has been decelerating too.

    All of this adds up to a global economy that has run up against all kinds of demand constraints. The usual suspects are all having their effects. The disabilities are almost too numerous to list: high household debts, crippled public balance sheets, excess global industrial capacity and saturated product markets, weak labour markets and eroding real disposable incomes, deteriorating fiscal flows, vulnerable TBTF financial institutions, an unreformed ponzified shadow banking system and corrupted currency markets.

    Perhaps the economy is tending to entropy.

    • i’m most concerned about Chinese inflation. They can’t get it under control effectively by rationing credit imho. Also the way they are rationining credit isn’t going to see capital go to it’s most efficient use, which longer term is problematic.

      They should just float their currency…..