Trading Day: duck and cover

The S&P/ASX 200 Index closed down 3 points to 4141 points in a strange session coming into the EU Meeting this weekend. In after hours trading, the index is up 10 points, with Euro and US markets pointing to slightly higher opens.

Before I go on, something happened after “lunch” about 2pm today on the ASX200. Not a large move – around 30 points or less than 1%, but telling. I’ve watched the ASX200 intraday for over 5 years now and this is the hallmark of institutions closing their book for the weekend, not quite a “risk off” event, but something Nassim Taleb would call “accepting caution as a strategy“.

Asian markets were equally skittish, with Japan’s Nikkei 225 down 0.1% at 8668 points, whilst the Hang Seng was steady at 17978.

In other risk assets, the AUD is currently trading at 102.42 cents USD whilst WTI crude rose nearly 1 percent to $86.40 USD a barrel.

Gold rose nearly 1% during the Asian session, currently at $1624 USD an ounce or $1587 AUD an ounce.

Movers and Shakers
A mixed, but mainly red board on the ASX, with mixed sector performance, property and healthcare the biggest winners whilst consumer stocks (mainly Wesfarmers (WES) and Woolworths (WOW)) and telecom the biggest losers.

The banks were mixed, with ANZ up 0.43%, Commonwealth (CBA) down 0.4%, with National Australia Bank (NAB) and Westpac (WBC) steady. Macquarie (MQG) lost 2%

Cochlear (COH) jumped 4.5% whilst its “twin” CSL lost 0.23%

BHP Billiton (BHP) was bid up slightly 0.6% whilst Rio Tinto (RIO) lost 0.4%, Newcrest Mining (NCM) also losing 0.4%, Fortescue (FMG) down 1.4% and Woodside Petroleum (WPL) losing 0.6%.

The Charts
As I said yesterday, it seems no one wants to hold risk assets going into the EU Meeting/Conference “talkfest” this weekend. Yesterday’s slump was improved upon on the open but as I said, a 1% intraday drop has the index closing the week heading for support at 4100 points.

The daily chart below shows a candle called a “cross” with a slightly higher tail (intraday high) showing broad selling, pushing the index down towards support at 4100 points.

For this rally to have any continued strength, it needs to surpass the 4300 level, preferably on a weekly basis, and then close above the long term moving average (probably with a retest of the old resistance as it becomes support, thus completing the pattern).

If risk is turned off on overseas markets (i.e Euro and US) after this weekend, the short term target is close by at 4100 points, with a medium term target at support at 3850 points.

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

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  1. The talking heads on business channels keep saying the markets are “pricing in disaster”, and any outcome other than disaster will see a huge rally.

    Does anyone buy this?

    For me, a disaster is a disorderly default by one or more PIIGS and the disintegration of the Eurozone. A mid-range result is managed default by Greece and the recapitalizing of several European banks. The most optimistic outcome is Greece takes it medicine, muddles through and absorbs most of the pain, the other PIIGS and all major Euro banks escape unscathed.

    Most markets are off about 15% from their post-GFC highs, which is hardly disaster. Disaster would be a revisiting of the early 2009 lows (or worse). It seems to me the market is pricing in a mid-range result from the Euro debt crisis because no-one really knows which way things will go

    • Well said – I don’t buy it either. But its slightly mixed, at least for the big markets:

      The DAX is off 24% from its May high, but still 58% above its March 2009 low (i.e around 20% annualised)

      The FTSE is off 12% from its high, still 53% above its March 2009 low.

      The French CAC-40 is off 25% from its high, but only 24% above its March 2009 low.

      The Nikkei 225 is similar – also 23% from its high, but only 24% above its March 2009 low.

      As for the US, the SP500 is only 10% off its high, and some 80% above its March 2009 low.

      Sorry for the slew of stats, when I have some time I’ll show a comparative chart.

      There is still a large chance of a rally, particularly if the Euro can get its act together (hang on, I just need to regain my composure, sides are splitting) or if the Fed comes out with another QE (RMBS seems the new game…), but there is still LOTS OF DAYLIGHT below current prices.

      • So nothing like a disaster is being priced in anywhere. The CAC-40 and Nikkei are pricing in tough times but nothing like a catastrophe. In the US its barely a correction.

      • Actually the only market pricing in anything like a disaster is Shanghai, and China is supposed to be rescuing the rest of the world!

      • what have percentages got to do with anything?when you buy stocks you buy earnings and balance sheets not percentages of how far things have moved up or down? then you need to compare the asset class to other asset classes. stocks are dirst cheap and good luck to anyone selling lowly geared asx100 companies on single digit PEs and double digit yields