Markets floated down today, the official reason being the awkward response to the flurry of official Chinese data over the weekend. Also today the PBOC let the official currency (reminmbi, sometimes called the yuan) float in a wider range – its a formally managed float, ie. almost fixed. As a consequence, it fell against the USD, down about 0.33%, in another showing of competitive devaluations around the world. Except Australia and New Zealand of course, because we’re different and can compete and so forth.
Okay, wipe the coffee off your screen and read on…
The local slot machine, the S&P/ASX200 index ending up losing 0.3% or 15 points to just under 4200, at 4196 points. In my weekly “Trading Week” (posted on Saturday mornings after US/Euro session closed) analysis I reiterated that the local bourse needs to snap above the 4300 point resistance level before moving into a cyclical bull market:
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If it doesn’t, the market is more likely to track sideways and in any “risk-off” event, plummet back to 3800 points again, where buying opportunities should present themselves for the brave investor.
Other Asian markets are also down, with Japan’s Nikkei 225 down 0.4% to 9889 points, the volatile Hang Seng down 0.7% to 20942 points. The Shanghai Composite is also off 0.5% to 24256 points, still above its breakout from its long term downtrend channel.
The AUD slipped 50 pips or nearly 0.5% to 1.0525 against the USD and is looking ever weaker (Disclosure: I’m short for a short term trade that may become a larger position):
Gold lost over $10USD per ounce in the Asian session, moving to around $1702USD per ounce and slightly up at $1618AUD per ounce. It still looks pretty weak, but support at its 200 day moving average around $1660 likely to bring in the gold bugs:
The ASX8
Regular readers will know I follow the ASX8 (the top four banks and miners) on a daily basis, as they are effectively a big proxy for the entire market – the Houses and Holes. Add Telstra (TLS) and you’ve pretty much covered the major stars (or dogs, depending on your point of view) of the market.
I’m going to look at 3 today – one of which is a possible short term long trade.
First, the Big Australian Mostly Owned by Others, BHP-Billiton:
This is a classic rectangle pattern – not hard to figure out what to do either way here. Contrarians would be buying at these low levels near support (the bottom orange line) whilst short term traders will likely sell as it approaches resistance (the upper orange line). My thesis still stands: BHP has to break above that resistance level so the whole index can move.
Next, the largest division of Megabank, CBA:
CBA has been bl##dy frustrating, although I did call the top recently for a short trade, which I’m still in but with a tightened stop loss. As CBA approached its long term moving average it slipped and fell and is now below its uptrend from the October 2011 lows. This is bearish for the country’s largest building society. I wonder if the share price correlates to the new daily property index? Finally, something actionable:
Fortescue (FMG) has roughly tracked the iron ore price and has broken out of a very short term bullish rectangle pattern. Does this have legs? I consider FMG to be extremely volatile, my timeframe is always short-term and the fundamentals unclear to say the least, so my risk management is fairly dour (e.g this is a 40 basis point risk trade – I only risk 0.4% of my equity, with a stop loss just below $5.40).
My approach would be completely different if I was investing in the stock, which regular reader JC asked me about with regards to Cochlear (COH) earlier today. Here is the chart noting my medium term investments (yes, I’m long COH) and my short term hedges (yes, I’m short – a little – COH):
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I will talk a little bit more about the differences between trading and investing in a future post, including why risk management is still more important than outright stock picking.
The Futures
The futures are looking mixed going into the European session, with traders absorbing the Greek default news from the weekend. US and Euro markets are pointing to opening down a few points, whilst the local market is currently stable on the futures. There is no market-moving data tonight.
Let’s see what happens in Market Morning tomorrow.
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