Could the crapola ASX actually break out?

The commodity pain trade is roaring upwards today with iron ore off the hook up 6%:

Big Iron is pretty circumspect about it:

Big Gas is weak, notably so when one reads all of the positive guff coming from brokers:

Big Gold is hot as it signals more USD weakness. I am a seller here still:

Big Bubble is cooling off after a good run:

Big Liar is running. Broker’s do love a good IPO to suck dry:

Could the crapola ASX actually break out here?

The head and shoulders topping pattern that had been forming is dissolving somewhat. In it’s place we now have what is a very large bullish ascending triangle pattern. If the ASX could break above its recent tram tracks then a run for 6000 points seems a reasonable notion. If that bigger triangle breaks upwards then look out!

Consider what would be needed to drive it:

  • higher iron ore, crazy but possible if the USD breaks down further, plus
  • although the AUD would break out too, that could become as asset to global investors if they got it in their heads that Chinese growth was going to last, and
  • both of these would need to be strong enough to overwhelm next year’s dour outlook.

At the MB Fund we’ve considered this prospect long and hard. We are certainly Fed doves but reckon the probability is against the USD falling too much further, especially as the EUR has already risen to levels that are likely to perturb an ECB facing falling inflation. As well, China is set to slow through H2, though only slowly, and moving into the Communist National Congress that risk rises.

An ASX break out to follow the AUD is more possible than it was as commodity pain trade 2.0 runs amok. As well, Aussie valuations are high but not compared with some other nations.

Still, we reckon the better way to play it is to look through any spike to next year’s US firming and China/European softening.

It bears close watching.

David Llewellyn-smith is Chief Strategist at the Macrobusiness Fund, which is currently substantially allocated into international assets. If you want to get your money offshore to catch any downdraft in the Australian dollar then fill in your details below and we’ll be in touch. 


The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. 

Comments

  1. Is the ban by China on North Korea exports of coal and iron ore causing the rally in coal? I wouldn’t expect it to effect iron ore much apart from price correlations, but are N Korea’s coal exports significant?

  2. To answer your question: Yes ….. we CAN ……… and, we will.

    12 mnth targets:
    CBA = $90
    FMG = $8.50
    XJO = 6300
    .

    From these levels, the Index will then go to a new all-time high, above the 6700 of late 2007. This is an equity bull market, and has been so ever since early 2009

    .

    The currency will benefit to, from the foreign buying : AUDUSD = 83 – 85 ……… and ………. AUDJPY = 95, in 12 months time
    .

    You seen it first here, on MB ……….. bravo to …………………………….. Freedom of Speech – Bbbbbbbbbbless you.

      • I can’t see that as the sufficient condition, HnH
        .

        FMG: Vastly decreased cost/ton; earnings now TWICE the 2011 level – but, share price is at 2011 levels; PE only about 6.6X
        .
        CBA: Lower for (much, much) longer interest rates [ subdued + stubbornly low inflation/wages ] = enhanced re-rating upwards, later ; foreign buying of houses negates impact of local wage/debt issues on bank lending
        .
        XJO : Cheap, cheap, cheap relative to major foreign markets, and in relation to risks and outlook.
        .
        AUD = That US$ is going lower – thanks to Trump, and the Yen has had it’s run, in the geo-political environment.

        Cheers, and all the best

  3. Ha Ha. And yesterday it was going to collapse. You guys are hilarious. It’s up, it’s down. it’s collapsing, it’s too the moon. Lower teh rates, raise teh rates. He’s a kiwi, no he’s not. Consistently inconsistent.

  4. Amazing pennant over the last 2.5 moths, particularly on SPI futures. Broke out to the top, took me out of 1/6 of my position and a pip from the next 1/6. Could be a false break, clean us shorts out!. Through 5840 nullifies the head and shoulders and it’s away North. Going to be a big move either way but I can only see the usa exploding down if it was to explode in one direction. Seasonal, massively over valued, taper, Trump, debt ceiling will not pass.

  5. Hold your gold for a few weeks, forget charting BS, we see what happens when companys report, that is the real world. CBA will be on the nose for a while, IPL,GNC,AAC worth more.TLS at 3.85 and QBE at 11 ok also.