By Chris Becker
If you only listened to the local reports you’d think it was chaos out there as the local market fell over 1% – and that means everything if you see the table and the technical analysis of the ASX200 in the second half of the post below – but for the rest of Asia, it was a solid bullish day.
You see everything else (ok, the Kiwis had a scratch day – also I’m still waiting on a reply from someone if they know how I can trade/position the NZX50 Index from an Aussie account…very surprising that you can’t) is up!
The Nikkei 225 was the weakest, up 0.2% but the Yen is weakening even further, the Hang Seng was up 0.5% still building on its uptrend while the Shanghai Composite is quite bullish after a solid PMI print (well that is how it was percieved) up nearly 2% currently.
The Aussie (AUD/USD) as the risk proxy is dead flat moving nowhere – very surprising, or is it? (I’m channeling that guy from the History Channel with the weird hair who talks about Ancient Aliens here) With the RBA releasing commodity prices this afternoon – down nearly 30% in AUD terms since the October 2008 peak – and house prices going nowhere – well technically down 5.4% from their peak when a certain analyst made an outrageous bet against a major hedge fund manager at the exact peak two years ago – will the AUD come under pressure with even more cuts to come?
The Euro and US Dollar Index (DXY) were also flat today, whereas gold (USD) is also building on short term support above $1700 level:
Australian Stocks
Something that makes today’s big moves across the bourse a bit suspicious is that EVERYTHING went down. Some are saying this is window dressing via portfolio rebalancing by the big funds, given its the start of the month…
I don’t know – to me it exactly highlights the problem with the makeup of our market – which is ridiculous. Over 40% is in financials – the biggest concentration in the world – and for all intents and purposes, its one entity – Megabank we call it here – the big four banks. Next are the big four miners – BHP, RIO, WPL and NCM. Add in the ludicrously priced iron ore miners – e.g the dead and buried Fortescue Metals (FMG) and the concentration risks are immense.
The macro data is really starting to weigh, as is the fundamentals, i.e the lack of earnings growth, the too-high AUD and the inability of the household sector to fire up spending….
There has been a big selloff in financials – with the NAB falling over 3% today – here’s the weekly chart of the sector, where my KC Signal fired off recently calling a top:
Looking at the daily chart we can see the trendline from early June has been broken – but this could just be a fade – so the next level to watch (the highest orange horizontal line) is just above 4600 points. If this support line is breached, the next is just above 4500 – a break of that would be very bearish indeed:
I dont like putting stock (sic) in a single day’s move, but today’s modest 1.3% fall for the index is very important on two fronts. First, its a classic bearish engulfing candle, that is the open and closer are at the extreme high and low of the day respectively and they encompass all the price action of the last week. Further, todays price definitely breaks the uptrend since early June – which has been respected ALL THE WAY.
Combined with my KC Signal this does not necessarily spell the end of the uptrend – with the probability going towards a dip, particularly if tomorrows action breaks below the April 2011 high at 4450 points, the target is then the 200 day moving average at 4300 points. I have warned the Macro Investor subscribers about this potential action, and gave them some options on how to protect their portfolios from a fall of this magnitude. Read the article here for more information.
All eyes on the S&P500 tonight and then non-farm payrolls on Friday to set the course into next week.
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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.
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