ASX Equity Morning Report 31/08/201

Overnight Market Snaphot

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

 

US Indices gapped down on the open following the lead of weak trading in Asian and European markets. Headlines out of Europe indicated the International Monetary Fund sees a "major challenge" in implementing measures for Greece. Another comment which rattled the markets came from Slovak Prime Minister, Robert Fico, who suggested there is a 50% chance of a euro area breakup. The news resulted in a sharp sell-off in risk assets as crude oil, gold, silver, and the euro all fell to session lows. Weak data points out of Japan and Germany also added to the bearish tone. Stocks were able to recover some of their losses before succumbing to late-day selling pressure which resulted in the S&P 500 closing lower by 0.8%.

In yesterdays Futures report I wrote:

“I feel it is important to stress that we are seeing major weakness across Asian markets with most indices -1% to -1.5% today. One by one I am seeing topping patterns and breakdowns to the downside namely the Hang Seng and the ASX200. The Shanghai composite remains in a strong downtrend and continues to break to yearly lows. Risk assets such as The Australian Dollar also continue to trend lower. In my experience, Asian equities are often a lead indicator for global markets. This is because Asia is an export driven economy and a barometer for “growth”. If investors are now beginning to pull their money out of the region, this does not bode well for our offshore counterparties.”

From a technical standpoint, I have continued to show weakening momentum, breadth and potential Double Top patterns across markets: http://fpmarkets.blogspot.com.au/2012/08/double-tops.html AND http://fpmarkets.blogspot.com.au/2012/08/futures-and-fx-report-22082012.html. This has formed an important backdrop for the current weakness.

The low end of the recent range is now being tested in a number of markets. The all important levels remain S&P500 1395, DAX 6900 and EUROSTOXX 2400. There may be somekind of short term relief bounce out of these zones, especially with Bernanke’s upcoming speech (2am Saturday AEST). However, breakdowns through these levels may really open up some genuine selling and a deeper correction so keep these on your radar.

S&P500 15mins:

Price is now testing the low end of the range 

S&P500 Emini Key Levels:

Support Levels: 1400/1395, 1350,

Resistance Levels: 1415/20, 1450

OZ Stockwatch

Something that caught my eye this morning was a comment in the AFR that watching the price of Iron Ore has now become a "national obsession". I couldn't agree more. There are now so many bearish articles appearing in the paper and lots of doom and gloom reports. Don't get me wrong, I understand the fundamentals of what is happening here and it doesn't look pretty. However, after a -25% fall in a month, the timing of these articles is interesting indeed. In my experience, this is often exactly the worst time to be initiating trades to play this theme. If anything, it is indicative of a possible capitulation low round the corner. There is nothing yet from a technical perspective to suggest a potential bottom. However, after such a steep decline and extended move lower, traders need to pay particular attention to their risk reward here.

A better "theme" to play is the obvious slowdown in the mining services. BLY was very forthright in its outlook statement yesterday and the stock closed -35%! Keep names like ASL, MND, MAH on your radar as these stock still have some way to go to "test" their respective support levels.

Eco Calendar

11.30am AUS Private sector credit

Corp Calendar

FMG: Ex-Div 4c

SDM: Ex-Div 6.5c

FY Earnings:

ALK, HDF, IGO, HVN, LYC,MML, PDN, RRL, SFR

Analyst Rating:

MQA: Raised to ’Neutral’ at JPMorgan
KCN: Cut to ’Underperform’ at RBC Capital

News:

AIO: S&P cuts outlook to stable from positive, reaffirms long-term corp. credit and senior debt ratings at BBB-.

BLY: Shares in driller Boart Longyear yesterday dived by 37 percent to A1.50 after the company substantially lowered its earnings forecast for next year. .  'We're a proxy for the global economic view of the world," Craig Kipp, chief executive of Boart, said.  He added that the resources industry was "in a state of flux", with its customers more wary due to a combination of the United States presidential elections, the  euro zone debt crisis and weakening growth in China

FMG: yesterday admitted that the current slump in the commodity's price could extend even further.  "At this stage, I think we will see a very  sharp decline and then a return back to US$120 a tonne," Nev Power, chief executive of Fortescue, said at a luncheon for the Sydney Mining Club lobby group yesterday. Andrew Forrest, chairman of Fortescue Metals Group, has injected nearly A$40 million into the iron ore producer in a bid to raise confidence in the miner

Mining:  Australia and New Zealand Banking Group  yesterday declared that while the level of mining investment in Australia  this financial year would be less than previous forecasts, it  would still be 40 percent higher than the A$81 billion posted last year.  "This confirms our view that many of the resource investment projects over 2012-13 are either committed or under construction investment will remain a key driver of near-term growth," Justin Fabo, senior economist at the bank

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. 

-Price/Vol scan and Bearish price action: ASL, BLY, BKN, BHP, MAH, MND, and STO

-Support:

BHP: 32.80 to 33.00. A strong base pattern built under this 33.00 neckline but the stock failed to hold the breakout above this zone. There has been a strong close back down below this support zone and this is a “failed breakout”. These failed patterns are indicative of underlying weakness as the breakout failed to uncover any additional buying. Please see yesterdays post on “failed patterns”: http://fpmarkets.blogspot.com.au/2012/08/the-most-important-rule-in-chart.html

FMG: 3.30 to 3.40. Strong breakdown through the 3.85/3.90 support level. Target is 3.30/3.40 potentially based on the weekly chart.

NCM: 24.50 to 25.00

-Resistance

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

IAG: 4.00 to 4.10

ASX200 and SPI Analysis

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

My SPI Range today: 4270 to 4310. Outlier level 4250

My SPI plan today: SPI futures are indicated at 4287 first thing. Fair value is -12 points and thus this puts the XJO at approximately 4300 early.

Yesterday I showed a solid support zone at 4325 to 4330 in the SPI and said “breaks of the short term support zone shown below will open up increased momentum to the downside....traders should join the trend lower should it break”. The more times a support is tested and the more "obvious" it becomes, the more likely it is prone to a breakdown. The charts below show my first major target zone for this sell off into the ASX 4270/80 zone. 

The short term trend is now down after a clear distribution pattern. Thus I will be looking for early bounces into 4290/4295 SPI for possible short entries targeting the potential target zone into 4270. Breaks above 4300 open up a retest of 4310 and this should be strongly offered. Any move above here would be stronger than anticipated.

XJO Daily:

Several reversal candles and now a confirmed breakdown from the top end of the range. 

XJO 15mins:

This is the first support zone I am looking at coming into today.

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 60mins: A setup for swing traders

An interesting base pattern has built under the 33.00 neckline. There was an attempted breakout but the stock was unable to hold onto gains. Breaks of 32.50 to the downside would indicate a failed breakout and a potential short trigger. The fact that there was no additional buying above the breakout zone could be indicative of underlying weakness.

ASL Daily: A breakdown trade

WPL Daily: A setup for the swing traders

NCM Daily: Retracement into support zone

 

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 lives 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