ASX Equity Morning Report 05/09/2012

Overnight Market Snaphot
 

US Indices opened unchanged overnight before falling quite sharply into the red after the August ISM data missed expectations. The ISM Index showed US manufacturing shrank for a third month in a row and was reported at 49.6 versus consensus of 50. However, once again that trusty 1395 level held firm and stocks staged a slow climb higher erasing most of the losses. As such the S&P500 slipped 0.1% whilst the Nasdaq gained 0.3%. Interestingly, this US manufacturing slowdown comes on the back of PMI readings coming in below expectations in China, Germany, France, and Italy of late. 

Elsewhere, the European Union’s credit outlook was cut by Moody’s Investors Service overnight. The ratings company lowered the outlook on the EU’s Aaa long-term bond rating to negative from stable, according to a statement released late yesterday (Bloomberg). 

Commodities were relatively stable but Iron Ore continued its slide, falling -2.47% to 86.9.

From a technical standpoint, the low end of the recent range were tested and held once again overnight at 1395. This level continues to be a marker going forth. I thought that the inability to breakdown recently was indicative of a potential move higher but clearly price action is still lethargic. The technical backdrop continues to deteriorate, but only confirmed breaks now below 1397 would confirm a possible pullback and deeper correction.

Emini S&P500 60mins:

Price tested the low end of the range at 1395 again overnight and held. This level continues to be met with strong buying but how long can this last for? The more obvious a level becomes and the more times it gets tested, the more prone it becomes to a breakdown. Breakout traders need to see strong breaks above 1410 for a target into the previous highs at 1425.  

S&P500 Emini Key Levels:

Support Levels: 1395, 1350

Resistance Levels: 1410, 1420/1425

OZ Stockwatch

Eco Calendar

11.30am   AUS Q2            GDP

Corp Calendar

OZL: Ex-Div

CRZ: Div Payment Date

News:

BHP: Marius Kloppers, chief executive of BHP Billiton, yesterday during a brief with analysts reiterated his belief that the price of iron ore would rebound from its current lows and revive the global miner's bottom line before the end of the year.

DLX: Paint maker DuluxGroup extended bid for control  of roller-door manufacturer Alesco appears to be  reaching its conclusion after both sides agreed to crucial elements of the A$210 million offer

FMG:  The Company yesterday announced that it would be cutting 1000 jobs and postponing projects under construction in a bid to remain profitable despite the stark fall in iron ore prices.  The miner, which produces approximately 55 million tonnes of iron ore annually, said it would reduce the extent of expansion for its sites in Western Australia to 115 million tonnes, down from the previous target of 155 million tonnes. Moody’s says continues review for possible downgrade of Ba3 corporate family rating (Bloomberg). 

MINING: Gina Rinehart yesterday said via video to the Sydney Mining Club that Australia could not afford the Federal Government's mineral resource rent tax or its carbon tax.  "Now, the evidence is unarguable - that Australia is  indeed becoming too expensive and too uncompetitive to do  export-orientated business what was too readily argued as the self-interested complaints of a greedy few is now becoming the  accepted truth, and more ominously, is showing up in incontrovertible data," the mining magnate said

RBA: The Reserve Bank of Australia yesterday announced that it would be leaving interest rates on hold at 3.5 percentage points, and commented that the economic downturn in China was faster than anticipated.

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 Bullish price action: OGC, SBM, PEX,

-Price/Vol scan and Bearish price action: ALQ, ANZ, BKN, DOW, FMG, MAH, MYR, PAN

-Support:

FMG: 3.30 then 3.00. The Weekly low on 17/5/2010 was 3.28 and this could be a reference point in the short term. However, as per the chart in “Stocks of Interest”, the strong zone of support is all the way down at 3.00

NCM: 24.50 to 25.00

STO: 11.00

-Resistance

ANZ: 25.00. Strong bearish reversal candle yesterday finally confirmed this weekly resistance zone and upward trendline.

ASX200 and SPI Analysis

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

My SPI Range today: 4260 to 4320

My SPI plan today: SPI futures closed at 4301 this morning after hitting a low of 4282 overnight. Fair Value is now only -1.2 therefore the XJO is indicated at 4302 approximately first thing. 

Yesterday I was looking to short fade the 4240/4250 resistance zone straight up looking for a target down to 4325. The initial idea worked well indeed but the market was a lot weaker than I had anticipated. Clearly the comments from FMG put some fear into the market. Furthermore, the Banks also finally came under pressure as the market is now increasingly concerned regarding credit growth for the Banks, especially given all these mining projects and developments that are now being shelved. 

The key support zone level today is 4290. Given the weakness in Iron Ore overnight and the continued fall in AUD, I think we are likely to test this early. Scalp traders should look to this level for possible low risk long entries. Breakdowns of this open up a move into as low as 4260 possibly. I had thought that there was a potential ABC pattern off the recent high, but clearly the inability to break above yesterday’s recent zone was bearish.

Any bounce into 4310 to 4320 should provide low risk short opportunities.

XJO 15mins:

Yesterday price failed right at the resistance zone. Certainly the trend lower was weaker than anticipated. Testing key supports early and breaks of this open up a deeper move into target zone shown.

SPI 15mins:

Failure out of yesterday's resistance zone. The key support zone is 4285/4290 as shown and breaks of this would be bearish and increase momentum to the downside

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.

BKN Daily: A breakdown trade

A solid breakdown through the 6.00 support level. This opens up a potential retest of the swing lows at 4.60. This trade idea continues to play out. 

MAH Daily: A breakdown trade

A failed breakout above the 63c neckline. Price clearly broke down through the upward sloping trendline and the target is still some way lower.

ANZ Daily: A climatic reversal

A bearish reversal candle right at the top end of the range and major resistance. It has taken time to play out but now the price action is clearly confirming this zone. The first potential target is down to 23.50. 

FMG Daily:
Last week I showed a breakdown setup in FMG. This has played out with a clean break of the 3.80/85 support zone. The target for this move looks to be as low as 3.00. Certainly yesterday price action was bearish indeed and look for possible follow through today to the downside. 

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