ASX Equity Morning Report 07/09/2012

Overnight Market Snaphot

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

 

The S&P500 surged off the open as the European Central Bank announced specifics of its bond-buying plan and data boosted optimism in the American economy. Draghi said policy makers agreed to an unlimited bond-purchase program as they try to regain control of interest rates in the euro area. Indeed, he said the ECB will have a “fully effective backstop to avoid destructive scenarios” (Bloomberg).  The bond plan is the most ambitious yet in the central bank’s fight to save the euro after nearly three years of turmoil.

Gains were broad based with Financials, Energy and Materials all outperforming whilst defensive sectors such as Utilities underperformed. The Nasdaq closed at a 12-year high while the S&P 500 settled at levels not seen since January 2008. The two indices finished higher by 2.2% and 2.0%, respectively.

A few times in my career I have seen stronger than expected moves in the Australian market that acts as a precursor for a bigger global move. Our market is the gateway for international flows and yesterday we saw strength right off the open despite no real overnight leads. Thus on Twitter I stated “$ES_F #SPI This market is acting strong ahead of ECB meeting. Go figure. Moves like this often extend overseas. Careful shorts.” The way the Australia Dollar traded yesterday was also a lead indicator and led me to produce this post: http://fpmarkets.blogspot.com.au/2012/09/audusd-and-employment-numbers.html. Sure enough, the rally that began in Australia extended strongly overnight. 

From a technical standpoint, price has now clearly broken out above the Double Top zone and recent consolidation pattern. That 1395 level was strongly defended and ultimately a market that cannot sell is left with one other option- to go up. This now opens up a move to 1450 short term target and possibly beyond in time.

S&P500 Daily:

Strong breakout above the double top zone. Breakout traders should use this candle as confirmation for a new move higher as long as the market remains above 1395. 

S&P500 Emini Key Levels:

Support Levels: 1410/1415, 1395

Resistance Levels: 1425, 1450, 1485

OZ Stockwatch

Eco Calendar

11.30am            AUS     Trade Balance (Jul)

Corp Calendar

PPT:     Ex Div

SWM:   Ex Div

News:

BBG: Bain Capital, the private equity fund co-founded by Mitt Romney, has matched rival TPG Capital's A$694 million takeover bid for street, surf, ski and skate wear retailer Billabong International.  The company announced that it had receive an "indicative, non-binding and conditional proposal", with market sources confirming that Bain was the suitor

ECO: The Australian Bureau of Statistics yesterday published figures showing that while the unemployment rate had fallen by 0.1 percentage points to 5.1 percent last month, more than
10,000 Australians quit the labour force and the number of people employed fell by 8800.

NRW/FMG: The decision by iron ore producer Fortescue Metals Group to reduce costs and scrap it’s proposed A$9 billion expansion of its operations in Western Australia's Pilbara mining district will cost contractor NRW Holdings A$100 million.  NRW exited a trading halt yesterday to inform the market of the news, which resulted in the company's stock falling by 4.5 percent to A$2.13. 

QAN: The Australian Competition and Consumer Commission have warned that it would closely assess the decade-long code-share deal announced yesterday between Qantas Airways and its Middle Eastern rival Emirates Airlines.

RIO: Global miner Rio Tinto yesterday announced that it may be forced to downgrade the value of its aluminium arm even further, despite already declaring US$8.9 billion of impairment charges this year

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: AGO, BPT, IMD, MML, NCM, SLR, STO

-Price/Vol scan and Bearish price action: DOW, MND, NWH,

ASX200 and SPI Analysis

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

Yesterday the market opened a lot stronger than anticipated despite little in the way of overnight leads and no real bullish newsflow. When a market acts counter to what is anticipated, it is sending a very loud warning sign to heed the price action. Australia is the first major equity market to open and thus we often act as the gateway for international flows. Given our strength, clearly the market was anticipating a major event and these moves often continue throughout the globe in a knock on event.

We are still trading below the key 4400/4450 resistance level. Will this be the catalyst to send our market out of our range? Of course it is too early to tell but the first major dip into the uptrend got bought with conviction yesterday and there will be strong follow through today. The stocks that are interesting me here are those stocks in new or established uptrends which have pulled back and offer good risk reward opportunities to get into the upward trend. These stocks are CBA, BPT, MML, NCM and STO to name but a few.  

My SPI Range today: 4350 to 4400. Outlier level 4340 support.

My SPI plan today: SPI futures closed at 4369 this morning and thus a gap up of around 50points first thing. Fair Value is now only -2 therefore the XJO is indicated at 4371 approximately first thing.

With a 50point gap up into strong resistance, the SPI may struggle early to press ahead. Early resistance will come in around 4370 to 4375. Breakouts of this level open up a move all the way into the previous highs at 4390 and beyond. There is solid support now at the 4350/4355 level and any dips into this level should provide great low risk long opportunities to get in this trend. With new highs in US and European markets, an established uptrend in this ASX200, I do think that there is potential for some strong follow through to the upside in coming days so focusing on getting into this uptrend is the play.

XJO Daily:

Yesterday I showed a strong confluence of support coming in at 4250 to 4260. However, price never got into this idealised level and is a sign that investors are keen to buy any retracements back into the trend. 

SPI 15mins:

Breakout above the recent flag pattern with the first target into the previous highs.

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.

BPT Daily: A healthy new uptrend

FMG Daily: Hit target zone and now potential reversal

NCM Daily: A setup for the trend follower

Price has now pulled back into strong support and the upward trend. Yesterday there was a bullish reversal candle despite the weak market. A stock that outperforms a weak market like this is a sign of underlying strength.

MML Daily: A breakout trade

AUDUSD
Yesterday I put out a very timely blog post on the Australia Dollar looking for a bullish turn out of the 1.02 support zone: http://fpmarkets.blogspot.com.au/2012/09/audusd-and-employment-numbers.html. Overnight, the little battler built on gains due to strength across risk assets. The first targets for this bounce are up to 1.035/1.04 and possible beyond. However, one step at a time.

AUDUSD Daily:
Bounce right off the 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