Trading Day: Bedlam and Fear

The S&P/ASX 200 Index closed 105 points or 2.4% higher to 4348 points after eventually opening from the bedlam at the open and absorbing the news of a “hellish” deal involving a 50% haircut on Greek bonds to European banks. In after hours trading, the index has climbed a further 20 points, with Euro and US markets all pointing to stronger, higher opens.

Asian markets (they must have better computers) actually opened on time and traded today, with Japan’s Nikkei 225 up 1.8% at 8904 points, the Hang Seng up over 2% to 19498. The Shanghai Composite stood out for being only slightly bid up 0.3% to 2435 points.

In other risk assets, the AUD has jumped, currently trading at 105.4 cents USD, whilst WTI crude rose over 2% percent to $92.18 USD a barrel.

Gold has been steady during the Asian session building with no reaction to the EFSF bailout/haircut, and is currently at $1724 USD an ounce or $1635 AUD an ounce.

Movers and Shakers
Everything seemingly was bid up today – with the usual suspects – energy, financials and materials sectors the biggest winners.

The banks were all bid up strongly, with ANZ up nearly 2%, Commonwealth (CBA) 1.8%, National Australia Bank (NAB) up nearly 4% on an excellent result and Westpac (WBC) up 2%. Macquarie (MQG) jumped ahead over 5% to round out an excellent day for the sector which has rebounded in recent weeks, leading the overall index.

Not far to resistance at 4300

Cochlear (COH) jumped 2%, whilst its “twin” CSL gained only 0.4%. Telstra (TLS) also was a bit sluggish, only putting on 0.3% in a holding pattern.

BHP Billiton (BHP) jumped out of the gates and rose nearly 4% whilst Rio Tinto (RIO) went further at 4.4%, Newcrest Mining (NCM) up 1.6% even though gold was steady, Fortescue (FMG) up nearly 9% and Woodside Petroleum (WPL) up nearly 3%. The ASX8 are doing well….

Woolworths (WOW) was the only big name stock sold off, down 0.3% after announcing that first quarter sales figures were up almost 5%.

The Charts
What drives markets in the early stages of a rally? Fear, not greed. Greed comes later when the winnings look easy – the fear comes first (or second after canniness and fearless risk takers step in when all others run for cover).

So today was either the heralding of a new bull market in stocks, or more likely the confirmation of a bear market rally – which could go as high as 5000 points – or, more ominously, a trap. Lots of bells to listen to there – which is in tune, and what noise should you filter?

Let’s look at the daily chart first:

I think it’s fairly obvious where we are now. The daily downtrend from the 11 April top at 4971 points through the retest in July, before capitulation to the lows of late September and early October has been broken.

Further, the resistance level at 4300 points, which was feinted twice in August has also been broken. I expect this to be tested, with a retracement toward the trendline (marked in green) over the days ahead as the market approaches the long term moving average and the next level of resistance at 4450 points..

This is seen more clearly on the weekly chart above, where an inverse head and shoulders pattern has been completed successfully. The current move must be sustained above the 4450-4500 congestion area to succeed (and on a weekly, not intraday or daily close basis) with the next target of 5000 points.

Watch my “Chart of the Day” posts for continued analysis of US, Euro and Asian markets which will lead the way.

www.twitter.com/ThePrinceMB

Comments

  1. General Disarray

    When you refer to fear driving the early stages of a rally, is that fear of missing out?

    • Either that or the fear of getting trapped in your shorts!

      I haven’t looked at the market or charts all day from 8am til now, looks like I’ve got a bit of head scratching awaiting me now that I have started looking.

      • While the ASX 200 stays below 5000, and certainly below 4500, 2500 is on the cards in the next year or so.

        There are echoes of 2008 all over the place. S&P 500. ASX 200. Maybe all sent by the trading gods to fool me, but I can’t second guess, all I can do is go with what I see.

        Weekly chart down trends abound on global stock markets, not just the ASX 200. Nothing is certain, but down trend on weekly chart implies greater odds of lower prices than higher prices in coming months, it’s as simple as that.

        http://www.avidchartist.com/2011/10/asx-200-rally-echo-of-early-2008.html

      • yeah maybe AC but sooner or later you need to look at things like earnings and balance sheets not just charts. thats why everyone missed this rally. it looked bad on the charts but in reality stocks were cheaper a month ago than they were in march 09.

      • General Disarray

        Ah of course, covering shorts. I’ve never short sold so that wasn’t even in my mind.

        Thanks AC

  2. “where an inverse head and shoulders pattern has been completed successfully”

    good post prince but im not sure i agree on the inverse H&S. definately looks like a major bottom though that wont be tested for at least 6 to 12 months.

  3. It is amazing that iron ore could fall 33% in a matter of weeks, yet BHP can rally on 4% on the strength of a kiss and a promise in Brussels.

    I get it, but also, really think it is madness.

      • I’m sure you’re right, Mercury4.

        Trouble is, I also see madness. Then again, I am also prone to question what I think as well as what I see, and tend to conclude I can’t rely on either my senses or my reasoning. This fosters a state of motivational doubt, which is the last thing a trader needs…:)