ASX Shares Daily – October 19th

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By Chris Becker

A relatively muted day in Asia, as markets responded to the Google Gaffe overnight that saw the NASDAQ drop 1% after European stocks did well. The ASX200 fell at the open back eventually came back – and then some in the afternoon, almost negating my KC Signal (a top/bottom signal I’ve devised) , gaining 11 points or 0.3% to 4571. I’ll take a closer look at the bottom of the post including technical analysis of the bourse.

The Nikkei 225 had a quiet day after a very solid week, while the Hang Seng was the only Chinese market doing anything interesting as the Shanghai Composite had a scratch day after yesterday’s GDP rally.

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Aussie bond yields came back a bit today after being assaulted the last couple of days.The Aussie (AUD/USD) also came off the boil slightly in a weak day on FX markets. Remember though its more likely USD weakness driving this pair, not Aussie strength – a fact lost on many.

The Euro seems stuck in a trading range for now just below resistance against the USD, note the 13 day ADX (a directional strength indicator) is falling after the very strong rise in mid-September.

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Gold (USD) looks really weak here, falling $12 today and right on support – a break here and we could be on our way to $1630. I said yesterday that this retracement has not yet become a full on pullback – remember I’m short using my short term system (which is not the medium term system I use at Macro Investor -its for cross hedging my trades) – so a wide stop (or none for the brave of conviction) if you are long:

Australian Stocks

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The best sector today was IT stocks – but all eyes were on houses (banks) and holes (materials) again. First, National Australia Bank (NAB) says they’ve taken “safeguards” – a paltry $250 million in provisions – announcing fourth quarter earnings today, which were flat. The market didn’t like this, selling the stock off by nearly 3% – note the KC Signal from yesterday, with the 13 day ADX above the 40 zone indicating overbought:

This is somewhat reflected in an amazing run by the financials sector, which according to the ADX is now extremely overbought. If it cracks the uptrend, support at just below 5200 points awaits for a possible bear trap.

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The other big mover, presaged yesterday is Woodside Petroleum (WPL) which has either completed a bearish double top – signalling a reversal next week – or is about to break above obvious resistance at $36 per share:

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Finally the index itself. Looks similiar to the financials index above no? Why – because the ASX200 is mainly banks, with BHP and Telstra attached. If the banks rollover – as suggested by my KC Signal (this is a technical signal of my own design that caught the top of the last big move back in April) we’ll need a rotation into materials stocks to keep the juice rolling.

Again, watch overnight markets first before making any decisions – check out this price earnings chart and the ADX indicator above – we are WAY above historical ratios for even a bull market here. And earnings growth next year is ephemeral at best – I’ll have more in this week’s edition of StockTake at Macro Investor:

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This free daily update should be read alongside Live Trades articles, published every morning at Macro Investor, and placed in context with the longer trends and macro drivers within the overall technical picture, where Former “Trading Week” readers will find it reborn as “Technicals“, published 8.30am each Monday morning at Macro Investor.

Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest. A free 21-day trial is available at the site.

You can follow Chris on Twitter.

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