ASX Equity Morning Report 10/09/2012

Overnight Market Snaphot

US Indices were able to hold onto Thursday’s strong gains despite disappointing jobs data. The anaemic numbers turned into yet another argument in favour of additional easing. The S&P 500 finished higher by 0.4% while the Nasdaq ended flat. Nonfarm payrolls were reported at 96K versus the 130K consensus. The prior reading was revised down to 141K from 163K. The big moves were seen in the Commodities sector where Gold and Copper both soared, closing up 2.09% and 3.4% respectively. Iron Ore also managed its first significant bounce in a while higher by 2.3%.

As such, the materials sector settled higher by 2.0% and it outperformed other sectors.  Iron and steel names showed biggest gains as Cliffs Natural Resources jumped 14.5%. Meanwhile, United States Steel, AK Steel and Freeport-McMoRan posted advances near 8.0%. 

Interestingly on Friday, Chinese markets surged by 3%. The Shanghai Composite rallied sharply on news that the central government had confirmed approval of 60 infrastructure projects totalling $157bn. This bullish reversal comes right on a major technical support zone and there is increasing evidence that this bounce could prove to be very meaningful indeed. I will show this analysis in a separate post today.

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. Below I show a recent example of what happened when a similar Double Top pattern failed to play out. A very strong breakout trade and new trend higher ensued.

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 Daily ii:

A similar pattern occurred in November 2010. Price hit the Double top zone and did sell off some 40points. However, the correction never picked up momentum and when price closed back above the previous highs, a strong rally and short covering move ensued. 

S&P500 Emini Key Levels:

Support Levels: 1420/1415, 1395

Resistance Levels: 1450/55, 1515

ASX200 and SPI Analysis

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

On Friday we saw a clear rotation out of defensives stocks into materials on decent volume. Looking at the charts, this reversal in stocks such as WES and WOW have occurred right on meaningful technical levels. With the ECB backstopping European debt markets, potential further quantitative easing around the corner from the FED, and new infrastructure measures beginning in China, there is a powerful backdrop of central bank measures that should act as major support the market. No doubt there will be a number of institutions that are underweight the resources sector. Thus with this backdrop and with the bearish sentiment as it is, I anticipate a strong rally into year end. The switch out of defensives into “beta” could well be a continued theme. The key will be a solid break and close above the 4450 level in time.

My SPI Range today: 4320 to 4365.Outlier level 4390

My SPI plan today: SPI futures closed at 4349 on Friday night and this represents a gap up of 17 points. S&P 500 emini futures have opened -2points and the Australian Dollar is off 20pips from Fridays close.

Fridays trading was rather disappointing as the SPI gave back most of its gains and made a high in the first 5minutes of trading. However, what we saw was clear rotation out of banks and consumer staples into the materials sector. This is not a sign of “risk off” to me. 

There should be strong support today coming in at 4320/4325 and any pullbacks into this zone should provide a great low risk buying opportunity to get into this uptrend.  4350 will be early resistance and breaks of this should lead to increased momentum to the upside targeting 4365 and then the recent highs at 4390. The latter zone will be a push today. If we are weaker than anticipated once again today, breaks of 4320 open up a potential move into 4300 which should be a low risk scalping zone.

XJO Daily:

SPI 15mins:

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.

WES Daily: A bearish reversal at the top end of the range

WOW Daily: A bearish reversal at the top end of the range

AUDUSD
On Thursday 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. The first target for this bounce was up to 1.035/1.04 and we have now hit this zone. There may need to be some time for consolidation before a new push higher. Pullbacks into 1.03 could well be strongly defended now. Breakouts above this 1.04 zone open up a retest of the 1.06 level in time.

AUDUSD Daily:
Bounce right off the support zone. Note 2 strong back to back bullish candle

AUDUSD 60mins:
Price is now testing the first major target zone for this bounce. Traders should look for pullback into the trend for possible long setups.

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