ASX Equity Morning Report 22/08/2012

Overnight Market Snaphot

 

My observations below should be viewed as general advice and may not be right for you

We finally saw some good intraday movement overnight in US Indices but unfortunately for the Bulls, it was in the wrong direction. Equities got off to a strong start with the S&P500 touching a 4 year high but all gains were quickly reversed and the market trended lower for the rest of the session closing just off its lows. The DOW underperformed and finished lower by 0.5% while the S&P500 shed 0.4%. Total volume was also better than we have seen of late but still some way below average. 

I find this price action in the US markets very interesting given the strong resistance zones. Indeed, I put up a post on our new FP Markets blogsite yesterday pre-open detailing a number of Double Top areas across markets. Please find this post here: http://fpmarkets.blogspot.com.au/2012/08/double-tops.html. Yesterday’s closing candle in the S&P500 was bearish and a potential “reversal” candle. No doubt it is too early to start calling a top of any sort and the short term trend remains up. However, the first signs of potential distribution were shown overnight. The key support level for me remains 1395 and breaches of this would confirm a deeper pullback and possible new trend lower. 

Tonight there are some major releases on the economic calendar. The MBA Mortgage Index will be announced at 7 AM ET, and existing home sales will be reported at 10 AM ET. Finally, the FOMC minutes will be released at 2 PM ET (Bloomberg).

S&P500 Daily:

A closing reversal candle yesterday right into the Double Top zone. Note that a similar pattern is occurring in the Nasdaq and the Dow Industrials. 

S&P500 Emini Key Levels:

Support Levels: 1390/1395,1350,

Resistance Levels: 1415/20, 1450

OZ Stockwatch

Eco Calendar

10.30am AUS    Westpac Leading Index (MoM)

Corp Calendar

STO:     Ex Div 15c

AGK:    FY
APA:    FY
AIO:      FY
BHP:    FY
BLD:     FY
CCL:    1H
CSL:     FY
SEK:     FY

SWM:   FY
SUN:    FY
SUL:     FY
WPL:   1H
WTF:    FY

Analyst Rating:
AQG:  Rated New ’Neutral’ at JPMorgan

News

CMJ: The Kerry Stokes and James Packer-backed Consolidated Media Holdings media investment group expects to finalise a A$2 billion takeover offer from media mogul Rupert Murdoch's
News Limited conglomerate within the next month and a half.   The expectation comes after pay television network Fox Sports, which Cons Media owns 50 percent of, secured rights to
broadcast National Rugby League matches in a combined A$1.025  billion five-year joint venture with the Nine Network. 

QAN: has won back the Accenture and NBN Co corporate passenger accounts from rival Virgin
Australia, after the national carrier heavily discounted its proposition. 

TLS: The move by telecommunications giant Telstra to streamline its business and reduce costs will see another 650 employees lose their jobs, bringing the total number of redundancies at the company to 2000 over the last 18 months.  The telco is also planning to close down its Townsville and Lismore contact centres in New South Wales under its Project New strategy, a three-year plan to make the group more forceful and competitive.

WES: Richard Goyder, managing director of Wesfarmers, yesterday announced that the conglomerate would embark on more acquisitions after allowing for an A$2 billion capital
injection.    He added that the company's balance sheet was so strong that it could repay it’s A$5 billion in net debt from its yearly operating cash flows.

Technical

The following stocks are now testing their respective levels. I have derived these levels using my own discretion and please contact me if you would like me to describe and expand upon this analysis.  Keep these areas on your radar for tradeable opportunities:

-Support:

OZL: 7.00. Broke down through this level yesterday.

WOR: 25.80 to 26.00. There was a solid base pattern below 26.00 and price broke out above this zone in early August. There is now a “re-test” and offers a potential low risk entry into a new uptrend with stops at 25.50 should this support zone not hold.

UGL: 11.00. Gap down and break of the key support level yesterday. This opens up a potential move to as low as 10.00.  

-Resistance

AMP: 4.35 to 4.40. Breakout above this zone yesterday. There is an outlier level at 4.50

ANZ:  24.00. Strong close above this level on Friday. This opens up a potential move as high as 25 to 25.50.

BHP: 33.00. Breakout pattern in play. Attempted breakout yesterday that held this key level. A move below 29.80 could open up increased momentum to the downside and a potential failed breakout.

ILU: 10.65. Failed breakout above 10.65 and bearish closing candle. The stock was weak yesterday despite a strong market which is a sign of underlying weakness.

ORG: 12.50 to 12.75. Strong price action yesterday with 13.00 a possible outlier resistance level. Any further strength above this would invalidate the resistance zone.

STO: 12.00

WES: 34.75 to 35.00.

WPL: 35.00. Breakout above this level yesterday. No clear technical levels until 37.00.

ASX200 and SPI Analysis

My observations below should be viewed as general advice and may not be right for you

The main event today will be the results from BHP. There are clear levels for traders in play notably 32.90/33.00 as support and any strength should meet solid resistance up at 34.00. There are also a whole host of companies reporting today and please view the corporate calendar in this report. 

From a technical standpoint, the market is still very much at the top end of the range but price has managed to take out one resistance point after another. The recent run has shown the importance of following the short term trend and not imposing your will on the market. Of course at some point there will be a short term top and pullback but we just don’t know where that point will be. For now the market is being driven by earnings season and technical levels have taken a back seat. A quote from a Senior FP Markets trader aptly sums up the situation I feel: “I am more than happy to keep riding the beast wherever it needs to go while accepting that at some stage there will be a top and I might give some back....I would rather give a little bit back at the top than miss out on a decent run by pre-empting”.

Price is no doubt beginning to look vertical which always makes me concerned as this is not sustainable. Last night we saw an interesting reversal in US Indices out of a Double Top zone. Furthermore, it is important to note that Iron Ore fell -2.3% overnight which will continue to put pressure on our miners. Thus there are many warning flags but only a break of the short term uptrend would confirm a more meaningful reversal.

My SPI Range today: 4350 to 4390. Outlier levels 4400.  

My SPI plan today: SPI futures are indicated at 4373 first thing and fair value is 18 points today. Overnight we saw a strong reversal out of 4400 SPI and I believe the 4390 to 4400 zone will provide strong resistance today. Those looking to scale out of longs and potentially initiate shorts should use this zone. Breaks of this open up a potential retest of the ASX200 May high at 4450 but this will be a stretch today. On the downside, 4360 SPI was a key inflection point yesterday thus the target for any weakness should be into this zone. Only breaks of 4350 would put the short term trend in jeopardy in my eyes.  

XJO Daily:

This market is certainly climbing the wall of worry and stretching the resistance area. However, price is still at the top end of the range and it is difficult to forecast a “breakout” until we see a period of consolidation and then a move above 4400. 

SPI 5mins:

These are the clear short term boundaries I am looking at with 4400 as short term resistance and support coming in at 4360 first thing. 

Stock Charts of Interest

Please feel free to contact me if you would like help or assistance in interpreting the graphs below. You can also follow me o twitter @FP_markets for live commentary throughout the day.

BHP Daily: A setup for the Breakout traders

A potential base pattern has formed under the 33.00 level. A trigger would be a strong candle close above the 33.00 neckline. Please note that breakout patterns that fail to play out are actually signs of underlying weakness. 

ANZ Daily: A setup for the resistance traders

Price has now surged right into a strong overhead resistance zone at 25.00. No signs of a reversal yet but certainly one to keep an eye on and anticipate. 

ORG Daily: A setup for the Trend Followers

The stock has now rallied right into formidable overhead resistance. The trend is down as shown by the downward sloping trendline and the downward moving averages. 

Contact:

Austin Mitchum. Senior Market Analyst

First Prudential Markets

Email: a.mitchum@fpmarkets.com.au
Office: +61 2 8252 6800 Ext 120
Mobile: +61 0431547026

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