ASX Equity Morning Report 24/08/2012

Overnight Market Snaphot

 

Perhaps it is a stronger than normal coffee this morning, but certainly I am now watching events unfold overseas with increased interest. US equities fell overnight due to a combination of disappointing Chinese manufacturing data, increased concern that European leaders are not making progress in solving the regions debt crisis, and a big sell off in Hewlett Packard after missing earnings estimates. The reality is that the technical backdrop has been in place with double top zones and waning breadth figures as stressed in my recent post: http://fpmarkets.blogspot.com.au/2012/08/double-tops.html. 

We are now seeing initial signs of a reversal but the real catalyst will come over the weekend when Ben Bernanke speaks. If there is no new QE3 announced, there could be some toys thrown out of the pram.

An additional point to highlight that will be of interest to Australian traders today. The materials sector was under pressure after Dahlman Rose & Co. issued a downgrade of steel producers. The investment bank believes that steel prices are near a cyclical peak, thus warranting a downgrade. The news pushed steelmakers sharply lower with United States Steel, Steel Dynamics and AM Castle & Co all down between 5.5% and 7.0% (briefing.com). Iron Ore closed -5% and below $US100 a tonne. 

No doubt it is too early to start calling a top as 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. My key levels in both the DAX and the EUROSTOXX were breached overnight and this is not a healthy sign in my opinion. No one likes a bear but I am just revealing what is in front of me.

S&P500 Daily:

Another reversal candle right out of the Double Top zone. 

DAX Daily:

There she is. Reversal candle right out of the resistance zone. 

S&P500 Emini Key Levels:

Support Levels: 1400/1395, 1350,

Resistance Levels: 1415/20, 1450

OZ Stockwatch

Eco Calendar

0930 AUS Reserve Bank of Australia Governor appears before Economics Committee 

Corp Calendar

EX Div: COH $1.25, QBE 40c

FY Earnings: AGO, AIX, BBG, IRE, NWH, WHC, WOW

Analyst Rating:

CAB: Cut to neutral from outperform at Credit Suisse; PT A$6.40

PNA: Cut to neutral from outperform at Credit Suisse; PT A$3

TPI: Cut to neutral from outperform at Credit Suisse; PT A$0.96

News

BHP: Marius Kloppers, chief executive of BHP Billiton, yesterday told investors in Europe that the mining and carbon taxes in Australia made it currently unviable to invest in the country's coal sector.  However, Mr Kloppers added that the Federal Government's imposts were not responsible for the recent deferral of the US$30 billion expansion of its Olympic Dam mine in South Australia.

DJS: Paul Zahra, chief executive of David Jones, yesterday said the luxury department store was rolling out "10 years' work in 10 months" to revive profit margins and sales that have lowered profits this year by as much as 40 percent.  "The luxury end of our business is doing quite well and young fashion is in positive growth," Mr Zahra said. "Anyone who is not concerned about the future is shopping.  But the more modest ranges we stock is where we are doing it a little bit tougher.”

FMG: Stephen Pearce, chief financial officer of Fortescue Metals Group yesterday said that the iron ore producer would be able to fund its US$9 billion expansion proposals without raising capital even if commodity prices remained subdued, as the miner's production was scheduled to increase over the next few weeks. The stock actually recovered strongly after hitting a low of 4.08 yesterday.

FXJ: Billionaire Gina Rinehart unsuccessfully attempted to sell 5 percent of her stake in Fairfax Media after the conglomerate yesterday announced A$2.94 billion in impairment charges on its net assets

IAG: Mike Wilkins, chief executive of Insurance Australia Group, yesterday announced that the underwriter needed to raise premiums further to safeguard profit margins, although reinsurance price rises were already being passed through the system.  "We only get one chance a year to reprice we see the pricing outlook for the next year for home and motor in the range of 5 percent to 10 percent, some will be more, some will be less," he said

ORG: Electricity retailer Origin Energy yesterday saw its stock fall by 5.5 percent to A$12.24 after the integrated firm announced earnings were expected to be stagnant over the next year while it attempts to keep its investment expenditure within its cash flow.

QAN: Alan Joyce, chief executive of Qantas Airways yesterday said that the national carrier had reached an "inflexion point" after a year that saw the company post a net loss of A$244 million, the company's first loss since becoming a private entity.  Qantas also announced the cancellation of 35 Boeing 787-9 Dreamliner aircraft worth A$8 billion at list price

QRN: Lance Hockridge, chief executive of logistics group QRN, yesterday maintained his optimism for commodities despite indications that China's demand for Australian minerals was receding.  "I know you a lot of you were sceptical about our ability to deliver on those promises but it's not appropriate that we say the sky is falling we continue to believe that we are well positioned," Mr Hockridge added.  The group's shares soared by 4.3 percent to A$3.62 after the company posted a 22 percent increase in full-year profit to A$441 million

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

-Bullish Candles and price action: AIO, KCN, SLR

-Bearish Reversal candles and price action: ANZ, IAG, MGX, ORG, WPL

-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 Wednesday with a bullish reversal candle. Breakout traders could look to play this up to the 4.70 target zone with stops under yesterdays low.

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. There was a gap down post the company’s earnings. Price is now testing a key support level within a strong uptrend.

 -Resistance

ANZ:  25.00. A confluence of resistance levels and trendlines coming in here.

CSL: 43.00.

IAG: 4.00. Bearish reversal candle yesterday out of this 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.

My SPI Range today: 4320 to 4375. 

My SPI plan today: SPI futures are indicated at 4342 first thing. Fair value is currently 18 points thus puts the XJO around 4360 first thing. Yesterday I finally managed to get my ranges right and we saw a meaningful high and reversal out of the 4390 level. This was a clear double top pattern and shows that these setups can appear in all time frames. My key support level was 4350 and thus we are indicated below this level first thing but I would give this a bit of time first before deeming this a “breakdown”. Thus I am looking for early support at 4335 to 4340. Any failure to hold this zone would be bearish to me and indicate the start of a possible deeper correction. Thus traders could look to buy this zone early and if it fails to bounce, join the move lower. On the upside, I am looking for early resistance at 4355 to 4360 which should provide strong resistance and potential short entries. Any move above 4375 would invalidate this.

XJO Daily:

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. We have now seen 2 potential reversal candles at 4400 and this now needs follow through to the downside to confirm.

SPI:
Yesterday there was a clear double top pattern and reversal. these patterns appear on all time frames and are great trading setup. 4340 to 4350 is the key short term support zone coming into today. Only breaks of this would indicate a potential deeper move lower.

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.

ANZ Daily: A setup for the swing traders

Price is now testing so many resistance points after an extended move higher. Momentum appears to be slowing thus this chart is indicating a potential exhaustion. There is little confirmation yet of a potential turn but keep this on your radar.

IAG Daily: A setup for the swing traders

A bearish reversal candle was left yesterday out of the 4.00 Double top level. This now offers a low risk entry for those wanting to short this resistance level. The target for any weakness looks to be down at 3.60 initially. 

WPL Daily: A setup for the Swing traders

Wednesday’s announcement was taken negatively by the market and there was a very bearish engulfing candle. Yesterday was an inside day and thus breaks of Wednesdays low should open up increased momentum to the downside. In this chart I have shown examples of what followed next post similar reversals. Also note that price closed above the Bollinger band and has now closed back inside which signals a potential overextension and movement back into the lower end of the bands.

SUL Daily: A setup for the Trend Followers

Breakout from a strong base pattern and a clear re-test of the neckline. This offers a low risk entry into the established uptrend.

If you would like to chat live and interact daily with a Senior FP Markets trader, please go to http://www.cfdtradersedge.com.au/. 

In his live chat room up to 50 full and part time active traders share market observations throughout the trading day. This is an invaluable source for active ASX traders.

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