FP Markets: ASX Equity Morning Report 23/08/2012

Overnight Market Snaphot

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

US Indices spent the majority of the session in the negative. After a lower open due to weakness in European markets, stocks traded in a tight range until the release of FOMC minutes. There was a small bounce post the minutes as details emerged that some policy makers favoured more stimulus soon. As such the S&P500 registered a flat close with the Nasdaq outperforming, closing higher by +0.2%.

The FOMC minutes revealed a discussion between members regarding the costs and benefits of a new large-scale asset purchase program. Members of the committee agreed that additional easing could provide support for the economic recovery by further depressing longer-term interest rates. A few members did voice their concern over the impact such easing would have on markets. It appears the committee is maintaining their stance and that they will provide additional easing if general economic conditions deteriorate further (Briefing.com). Chairman Ben Bernanke will have an opportunity to clarify his views in an Aug 31st speech at a forum for central bankers in Jackson Hole, Wyoming. Certainly the price action in Gold and the US Dollar seem to justify imminent stimulus as Gold broke out above the 1640 resistance zone and the EUR surged, breaking well above 1.24.

From a technical standpoint, nothing has really changed from my recent posts. US markets continue to test major overhead resistance levels and we are seeing early signs of a distribution process. Please find my recent post regarding these patterns here: http://fpmarkets.blogspot.com.au/2012/08/double-tops.html.

No doubt it is too early to start calling a top of any sort and the short term trend remains up. The key support level for me remains 1395 and breaches of this would confirm a deeper pullback and possible new trend lower.

S&P500 Daily:

A closing reversal candle yesterday right into the Double Top zone.

S&P500 Emini Key Levels:

Support Levels: 1400, 1390, 1350,

Resistance Levels: 1415/20, 1450

Emini 15mins:

OZ Stockwatch

Eco Calendar

No major eco announcements out of Australia today.

Corp Calendar

ABC: Ex-div 7.5c

BEN: Ex-div 30c

Earnings: AAD, CAB, DJS, FXJ, FMG, IFL, ILU, IDL, IAG, ORG, PNA, QAN, QRN, RHC, SGM, SBM, TTS, TPI,

Analyst Rating:
RIO: JPMorgan’s top pick among European mining stocks

TRS: Raised to buy from neutral at Nomura; PT A$12.25

News

BHP: Marius Kloppers, chief executive of global miner BHP Billiton, yesterday softened expectations that iron ore prices would substantially recover, saying that any expected growth in demand for the commodity would be met by latent, high-cost capacity from China. "Because the marginal tonne of supply is in China, which just kicks in and kicks out, we probably don't see really dramatic price movements in iron ore to the upside," Mr Loppers said. The big event was also the announcement would not proceed with more than A$50 billion in local expansion projects due to falling commodity prices and rising expenditure. The company earlier this year was planning to spend around a$30 billion in South Australia expanding its Olympic Dam copper, gold and uranium venture, with another a$19 billion going towards the construction of an outer harbor at Western Australia’s Port Hedland. "Capital expenditure [costs] in Australia on the whole has escalated," chief executive Marius Kloppers said.

BLD: Boral yesterday announced a halving of its final dividend and wide-spread redundancies in its building products division as the construction materials manufacturer struggled to combat a fall in housing starts.

CCL: yesterday announced that it would enter into a manufacturing joint-venture with local brewer
Casella Wines that marks the beverage maker's first step back into the beer sector. "Today was the very vital first step of saying to people we're not just talking about moving back into the beer market in December next year, we are in the beer market from December next year," CCA chief executive Terry Davis said.

WPL: Woodside Petroleum yesterday announced a 2 percent slump in interim net profit to a$812
million, mainly due to one-off expenditure items related to the commissioning of the Pluto liquefied natural gas (LNG) venture. The key event was the announcement that the company was calling a temporary halt to the Pluto LNG exploration campaign.

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.

-Support:

AIO: 4.40 to 4.50. A strong base pattern has built over the last 2 months with the 4.40 level the key neckline. After a strong breakout, price retested and held this level yesterday with a bullish reversal candle. Breakout traders could look to play this up to the 4.70 target zone with stops under yesterdays low.

BLD: 3.35 to 3.40. Despite a rather weak statement, price held in very well yesterday. This 3.35 to 3.40 zone looks to be key short term support.

BHP: 32.90 to 33.00. A strong base pattern has built under this 33.00 neckline. As long as this zone holds, there is potential for a move up to the 34/34.50 target zone. Note that “failed” breakout patterns are indicative of underlying weakness so if the stock cannot hold this key level, further selling pressure may well ensue.

SUL: 7.80 to 8.00. A gap down yesterday post the company’s earnings. Now testing a key support level within a strong uptrend.

-Resistance

ANZ: 25.00.

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

STO: 12.00

WPL: 36.00

ASX200 and SPI Analysis

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

There will certainly be lots of commentary today regarding BHP’s decision to shelve the $US20bn Olympic Dam project as well as other projects. I don’t think this can be too much of a surprise to the market as it has been well flagged. More importantly to me, the comments from BHP, STO, UGL and WPL all continue to highlight the difficulties of doing business in Australia. A high Australian dollar and high capital costs (and let’s not forget the regulatory environment) continue to make Australia a difficult place to do business now. It is hard to know where the “growth” is going to come from. My main point is that a number of companies have had a strong bounce over the last 2 months due to strong offshore markets. However, has anything really changed for a number of these mining and exploration related businesses?

My SPI Range today: 4350 to 4390. Keep an eye on 4350 as breaks of this open up a move down to 4320.

My SPI plan today: SPI futures are indicated at 4370 first thing after the late rally in US markets. Fair value is currently 20 points thus the XJO is indicated around 4390. The key resistance level remains 4390 SPI and I believe this will prove strong resistance on any rally attempts. These looking to scale out of longs and initiate shorts should use this zone with the appropriate risk. Breaks of this level could open up a potential retest of the ASX200 May high which would be an idealised level for bears but this will be a stretch today.

On the downside, my 4350 level proved to be strong support yesterday and capped the initial sell off. Overnight, the futures once again made a low at this level thus only breaks of this zone would highlight a potential trend change and a deeper pullback.

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:

These are the clear short term boundaries I am looking at with 4400 as short term resistance and support coming in at 4350.

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