Trading Day

The S&P/ASX 200 jumped again on the open, and is now up over 124 points or 3% at 4158 points.

Other Asian markets are experiencing similar big gains, with the Nikkei 225 up 1.15% at 9047 points, and the Hang Seng up further, up 3.3% at 19935 points.

Other risk assets are mixed, with the AUD stabilising against the USD, now at $1.0351 Gold is up slightly, now at $1756 USD an ounce. WTI crude has reversed, up 3% to $81.69 USD per barrel.

Movers and Shakers
It’s generally green across the board, with all sectors up. The banks are rallying strongly, with ANZ up 5%, CBA up 2% on the back of its earnings release, NAB up 6% and WBC up 5%. Macquarie is bucking the trend and is barely up 0.5%

The resource twins BHP and RIO are also taking part in the strong gains, up 3.5% and 3.9%. Cochlear (COH) and CSL – are up 3.5% and 2.9% respectively.

Today’s Chart
This is a very interesting rebound, after a mammoth volatility day yesterday (and yes, I did succumb to day trading, couldn’t help it with such an immense rally).

Daily chart of ASX200

As I’ve been saying, the Australian market will be going through some high volatility in the month ahead because of the full year earnings season (Australian companies only report twice a year), which will add to the overall market bipolar behaviour. The market could rally as high as 4500 points on the back of a “good” earnings season (which is backward looking in results, but forward looking on CEO/management sentiment).

But lets put something into perspective – h/t to Rota Fortunae who said:

There were at least 7 triple digit, multi-day [defiant] rallies in the 6 months between Sep 2008 and March 2009 (cue Mark to market and QE milky wilkies). Around those superb rallies, the ASX dumped 2000 points in 6 months.

Instead of GFC Episode 2 (Attack of the Sovereign Debt), I contend that the higher probability even will be a similar phase as from October 2000 to late 2003, where equity markets around the world fell up to 50% over a 3 year time period.

In the chart of the S&P500 above, each rally throughout this large bear market averaged 20% and lasted around 12 weeks or 3 months. (note that the market was falling before the 9/11 tragedy, so this cannot be counted as an aberration)

You will likely hear in the weeks ahead (from Gittins! et al) that everything is fine, as the market rallies, but consider the following projection carefully:

Weekly chart of ASX200 - projected to February 2012

Local earnings season continues – today its Flexigroup (FXL), Commonwealth Bank (CBA), Computershare (CPU) and Stockland (SGP). Remember to bookmark the overall update here.

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  1. ceteris paribus

    Thank you for your six month projection chart.

    It is informative possible scenario to hold in mind.

  2. I’m sorry, but in your second chart, the 260-day SMA declines between now and the future, but yet you expect a rally in actual prices up to mid-September.

    How exactly, between now and September, can the SMA decline as prices rise?

  3. Was just looking at late September 2008 (sounds like a line from a song ;)…

    Lehmann went Chapter 11 on 15th Sep. ASX200 went from around 4900 to 4500 in 3 days THEN it rallied from the 19th over 500 points over a few days. There were 4 more 400+ rally periods in that 6 months. VOLATILITY RULED, Trend:Down.

    Maybe that superlative line drawer Avidchartist can produce some Elliot Waving in that 6 month period?

    Food for thought:
    Nikkei bear rally table:


      • excellent chart.

        big picture story: prolonged debt overhang slow growth.

        market type: range bond

        we will see lots of dead cat rebound, and contiue adjusting downward.

        • Yep, big picture?

          Nikkei -75% over 22 years.

          To put that in perspective think ASX200 @ 1700 in 2029.

          Back to high volatility bear markets. The algo trading platforms and the swing and trend traders will make a killing.

          The equity oriented superannuant are the kill.

          ASX since 2007, down 53%, then up 56% (still down 27% from 2007), then a current leg down of 16% (down 39% from 2007).

          • Panic and Deflation x 2.

            Love it!

            Hopefully you can pass the message on to my council to stop raising my fees by 10% + pa or my grocers food by 10% + pa.

            Thats the best way to STOP my inflation – Otherwise i will just scream PAY RISE!!!!!!

          • agree.

            “buy & hold” is good on boom market, but we are in bear market territory. different market requires different trading style.

            big picture simple highlight what is the long term driving force –it is deleveraging process, right now.

            one thing we might be different from Japan is Japanese has tendency to deny of debt problem.

            western is more willing to recognise problem. The policy is like be either “write off” or “inflate out” or combination of both. Of course, someone have to pay for it!!

            How quick we adjust of this process is determining how long we will in this range bound phase.

    • Just saw this now Rota, haven’t been online today til 15 mins ago….

      What period do you want the waves for? The six months after September or the six months before?

  4. So you are effectively suggesting deflation and negative GDP Qtr on Qtr for the next few months in the US to culminate in a nominal fall of 50% over 3 years.

    Interesting stance!

    Roll out the long dated Puts at todays prices!

  5. My memory of that six months after Sept 2008 is that the market would rally in to every Fed meeting, and then top with a day or two of each meeting, rolling over and heading down hard.

    Also in that period, every ad-hoc piece of intervention by government or the Fed would be greeted with a rally for a few hours or a couple of days at most, then down hard for weeks.

    I hope the market behaves in a similar way again going forward, now that the bear trend has been re-confirmed, as it was quite predictable.

    First test of whether the old pattern is returning, will be to see if there’s any follow through upwards in the US tonight. Impossible to predict, but riveting to watch.