ASX Equity Morning Report 12/09/2012

Overnight Market Snaphot

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

 

Equities were broadly higher throughout the day before late afternoon selling sent the Nasdaq into negative territory. The dip also pushed the other indices lower, but they were able to hold most of their gains. The Dow finished higher by 0.5% while the Nasdaq ended flat. Eight out of 10 groups in the S&P 500 rose with the Energy sector outperforming. 

Traders down under will be pleased to know that IRON ORE once again had a strong night, with the index closing +5.47% to $100.2 overnight.

I really hope that clients are able to read and take note of my “Futures and FX report”. Indeed, yesterday I wrote:

“From a technical standpoint, price has clearly broken out above the Double Top zone and recent consolidation pattern with good momentum. Last night’s pullback into the previous breakout zone (1425) offers a low risk entry into this uptrend at support. When prices make new highs in a strong trend, the highest probability trade is to buy the first pullback looking for a retest of the previous highs at a minimum. We are looking for a continuation of the previous trend. Two outcomes typically follow:

i) The retest will either fail at the previous high in which case a small profit can be made.

ii) A whole new continuation leg begins and a strong trend ensued. Note the S&P500 pattern I showed yesterday when the S&P500 broken the Double top zone in November 2010.”

So last night we saw a strong bounce out of a low of 1422 that went on to retest the previous highs at 1437. Thus, the first scenario mentioned above has played out and a small profit gained for short term traders. We now wait to see if Price can breakout and continue the upward trend.

The main catalyst will obviously be the FED meeting and statement on Thursday. Only a break back down below 1395 would put the uptrend in jeopardy.

Emini S&P500 60mins:

Yesterday I wrote “Price broke out of a tight consolidation pattern with strong momentum. The overnight pullback into the previous breakout zone of 1420/1425 offers a low risk entry into the uptrend, with stops below 1415.” This support zone held firm overnight. 

S&P500 Emini Key Levels:

Support Levels: 1420/25, 1395

Resistance Levels: 1437/1440, 1455, 1515

 

ASX200 and SPI Analysis

My SPI Range today: 4330 to 4370. Outlier level 4320 support and 4390 resistance

My SPI plan today: SPI futures closed at 4342 overnight and this represents a gap up of 18 points. Fair Value is currently 2 points. The S&P500 eminis have given back most of their gains which is a small concern coming into our open. 

Yesterday the 4320 level was strongly defended once again as anticipated. Price remains in a short term range from 4320 to 4350 ahead of key macro events overseas. However, given the consecutive strong close in Iron Ore overnight and the lack of bearish news, today could well be the day we breakout. Key to this would be a strong bullish bar above the 4350 level. Thus, today I am looking for bullish bars ABOVE 4350 for potential breakout trades into 4370. There should be decent resistance at 4370 but the target for this move remains up to 4390 in the bigger picture. Waiting for strength above 4350 is the key signal for this setup. 

Early support should coming in around 4335. Any break of this opens up a retest of 4320 once more. However, given the amount of times 4320 has been tested, if we see weakness down to there again it is actually likely to break. I am hoping this is not the case but keep this in the back of your mind. Having alternative scenarios is key to successful day trading.

XJO Daily:

The market remains in a solid uptrend but needs a confirmed breakout above the top end of the range to confirm a more meaningful move higher.

SPI 15mins:

Short term consolidation pattern. If 4350 lifts to the upside this pattern will be triggered with a target back up to the previous highs at 4390. 

OZ Stockwatch

Eco Calendar

10.30am AUS Westpac consumer confidence

Corp Calendar

IGO: Ex-Div

Analyst Rating Changes:

WPL:  Cut to neutral from outperform at Macquarie; PT A$37.50

News:

CHINA: Andrew Michelmore, chief executive of Minerals Metals Group, a base metals producer backed by the Chinese government, yesterday said that authorities in the Asian country were now monitoring the commercial returns on international ventures much more closely.  "When companies go to [the National Development and Reform Commission, China's national economic planning department] for funding, they have to take along a model for their investment and they have to stress-test the model. They have progressed from just doing a revenue assessment to a longer-term profitability and return-on-capital-invested approach," Mr Michelmore added. (SMH)

FMG: The main financier behind iron ore producer Fortescue Metals Group has broadened its search for partners on a A$1.44 billion loan, with a slowdown in Chinese economic growth, delays to projects and a slumping commodity price continuing to push resources stocks down.  Yancoal Australia, the miner owned by Chinese state-owned group Yanzhou Coal, chief executive Murray Bailey yesterday said that "in the metallurgical coal game and iron ore, there's several more months if not quarters of weakness remaining". (SMH)

MINING: Major miners in Australia yesterday warned that more staffing cuts and project postponements were imminent following a move by the Queensland government to increase coal production royalties.  The Queensland government announced in its state budget that royalties would increase from 10 percent to 12.5 percent for every tonne of coal sold between A$100 and A$150, with a 15 percent royalty levied on coal sold above A$150

STO: Says will be able to move forward with plans to drill as many as 50 wells with stricter New South Wales coal-seam gas rules (Bloomberg).

TTS: Gaming and wagering firm Tatts Group as early as next week could appoint a new chief executive to replace Dick McIlwain, with an external candidate being strongly considered.

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: AWC, ORE,

-Price/Vol scan and Bearish price action: LLC, NWH, FMG

-Upside Breakout plays: AWC, NST, NHC, SUL

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.

NHC Daily: Base pattern and potential breakout

NST Daily: Base pattern and potential breakout trade

MML Daily: Retracement back into the upward trend

AUDUSD
The Australian and New Zealand dollars gained against all of their most-traded counterparts as
risk appetite increased amid speculation the Federal Reserve will buy bonds to boost the U.S. economy. Furthermore, the two currencies strengthened against the greenback after Moody’s Investors Service said the U.S.’s Aaa rating may be cut if it doesn’t reduce its ratio of debt to gross domestic product. Australia’s currency appreciated 1 percent to $1.0434 yesterday in New York after earlier rising as much as 1.1 percent to $1.0449, its highest level since Aug. 23. It rose 0.3 percent to 81.15 yen.

Yesterday I wrote
“There may need to be some time for consolidation before a new push higher. Pullbacks into 1.031/1.0320 should be strongly defended now and offer a low risk entry into the trend with stops below 1.03.”
This played out to a tee overnight. A strong breakout above 1.044 will now open up a move into the bigger picture target up at 1.06. That downward sloping trendline on the Daily chart will be key and if we continue to see these strong price candles, I believe a breakout to the upside is likely indeed.

AUDUSD Daily:
Bounce right off the support zone with consecutive strong closing candles. 

AUDUSD 60mins:
Pullback into the upward sloping moving averages offered a great entry into the trend.

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