By Chris Becker
It was an upside down sort of day here in Asia, as half of the equity markets were up, the other half down, whilst bonds were smashed. The ASX200 had a great day, up over 1% or nearly 50 points to 4330 after bouncing off support yesterday. I’ll take a closer look at the bottom of the post for a full roundup including technical analysis of the bourse itself.
The Japanese markets were even better (remember what I said about looking elsewhere?) with the Nikkei 225 up 1.8%, but the disappointment was again Chinese. The Hang Seng is off by 0.4% after being up earlier in the day, with all the mainland Chinese markets similarly affected, with the Shanghai Comp down 0.3%
The real action was in bonds – the Aussie 10 year yield gaining a whopping 0.11% to be at 3.47%, with NZ 10 years feeling the heat, yields up by nearly 20 points to 3.81% – this action was repeated throughout Asia, with Japanese yields up 4 points (that’s a big move – now at 0.85%) and South Korean yields gaining almost 10 points. Is the bond bull market over? Hmmm…
On currency markets, the Aussie had a look above resistance (which was support) at 1.05, but fell back, now at 1.0479 as Euro risk markets have opened, the Euro/USD has slipped we below its own support at 1.2320 holding, currently at 1.2266 against King Dollar:
Meanwhile, in bizarro world, the US Dollar Index itself has broken through very strong resistance at 82.55 points, seemingly on its way to 83 points, as gold (USD) maintains its sideways fund at just above $1601 USD per ounce:
In AUD terms, it has come back to $1528AUD per ounce.
Australian Stocks
Earnings season continued today – which explains this late post again. As you can see in the table opposite, the big sector mover was consumer staples, mainly because of Wesfarmers (WES) which surged nearly 4% for the day after posting an 11% increase in FY profit. The best ASX8 (top four banks and top four miners) stock was Westpac Bank (WBC), the worst Rio Tinto (RIO) which doesn’t seem to be joining in on the fun like its bigger brother BHP.
As I said yesterday, the local market was behaving normally for a healthy rally, bouncing off short term support at 4270 points – and today’s action is a big bullish candle, with buying support all day – but on a second glance, I think this is too much too fast – I’d rather see a proper retracement back to 4200 points for a lower risk, higher reward entry:
I still think we are on our way to 4400 points, in lockstep with the SP500, and then a dip awaits – which may or may not turn into an outright correction, particularly if the promise of more milkie wilkies (QE3) does or does not materialise. (I vote it won’t, but positioning myself on both options).
As always, watch for the overnight markets for the leads and check out other indicies/sectors and stocks for opportunities.
PS: for those keeping score, Cochlear (Disclosure: a long term hold in my family superannuation fund) is now back to where it was before its earnings release (where it fell around 5%) and actually up 2% since its addition to the MacroGrowth model portfolio, where all our stocks picks are up – on average 6.5%
Of course, what always matters is risk management and portfolio allocation, and total allocation to shares (as investments) is less than 16% – how much time do you spend picking stocks instead of managing your allocation and risk?
Til tomorrow.
These daily updates need to be placed in context with the longer trends and drivers amidst the overall technical picture, where Former “Trading Week” readers will find it reborn as “Technicals“, published 8.30am each Monday morning.
Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest. Each week Macro Investor publishes tables on the top ten most undervalued and overvalued stocks on the ASX. A free 21-day trial is available at the site.
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