ASX Equity Morning Report 13/09/2012

Overnight Market Snaphot

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

 

European stocks advanced to a 14month high after Germany’s top constitutional court cleared the way for the ratification of the euro area’s permanent bailout fund, the European Stability Mechanism. The court stipulated that Germany must ensure its liability to ESM does not exceed 190 bln euros, but this could increase with approval of lower house of parliament.  As a consequence, U.S. stocks rose initially but were only able to hold a portion of their gains in a session which saw two pullbacks to the unchanged line. After spending most of the day in the black, the S&P 500 ended higher by 0.2%. 

All eyes are now firmly on the FED meeting. Almost 2/3rds of economists believe there will be a third round of bond purchases according to a Bloomberg survey. Certainly the continued rise in Commodities such as Gold and the relentless bid in risk assets such as the Australian Dollar implies to me that a QE3 event is likely indeed.

From a technical perspective, there was an interesting pullback post this court decision overnight. I do believe it is too early to be calling tops, and the price action looks like a healthy pullback after an extended run up. The trend remains firmly up in the S&P500 and my short term target remains 1450/1455.

Emini S&P500 60mins:

Price is consolidating under the short term 1440 resistance level. This looks like the prelude to a further breakout into 1455 and possibly beyond. 

S&P500 Emini Key Levels:

Support Levels: 1420/25, 1395

Resistance Levels: 1437/1440, 1455, 1515

ASX200 and SPI Analysis

My SPI Range today: 4350 to 4390. Outlier level 4335 support

My SPI plan today: SPI futures closed at 4360 overnight and this represents a gap down of -4points. Fair Value is currently 2 points.

In yesterday report I was looking for strength and a breakout trades above 4350. Indeed, “

“...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.”

So my first target at 4370 was hit overnight but I still believe there is momentum behind this move and the potential for a continued push up into 4390/4400. Key to reaching the latter targets will be a breakout above the 70 level. Thus, I am looking for early dips into 4355/4350 for possible long setups, with stops in the mid 40s. Alternatively, look for breakout trades above 70 to join the trend higher into the 4390/4400 previous highs. Any failure to hold the 4350 level early would be weaker than anticipated and could open u a retest of yesterdays low at 4335. This is my less preferred scenario.

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:

The short term consolidation pattern was triggered yesterday. The targets are 4370 first target adn then up to 4390. 

OZ Stockwatch

Eco Calendar

11am    AUS     Consumer inflation expectations

Corp Calendar

TSE:     Ex-Div

MYR:    FY Results

News:      

FMG: Global ratings agency Standard & Poor's yesterday followed peers Fitch Ratings and Moody's Investors Service by ranking iron ore producer Fortescue Metals Group on review for  a potential downgrade, adding that the company could violate financial covenants unless the spot price of iron ore remained above US$110 a tonne for the remainder of the calendar year. 

LLC: To be added to FTSE ASFA Australia Large Cap 50 Index effective Sept. 24 (Bloomberg)

LYC:   Lynas Corporation is facing a co-ordinated campaign against its rare earths processing facility in Malaysia, with opposition political parties preparing to feature the site as a key issue in next year's national elections.  The opposition has pledged to close the plant down if elected, despite Lynas receiving a two-year temporary licence last week. (SMH)

OSH:  Says 2012 output guidance unchanged, sees  “similar” performance in 2013

WOW: Wesfarmers and Woolworths yesterday exchanged barbs over the accuracy of a report into the hardware retailing industry.  Woolworths claimed that a report from consultants Madison Cross on the Masters big-box hardware retailer, which is owned by Woolworths, was criticised as being factually inaccurate and part of a "dirty tricks campaign". (SMH)

QAN: To be removed from FTSE ASFA Australia Large Cap 50 Index effective Sept. 24 (Bloomberg)

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, KAR, ORE

-Price/Vol scan and Bearish price action: RIO

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.

Yesterday price action is not following the script. Certainly this news regarding the Queensland royalties is having an impact. Breaks below 4.20 open up a deeper correction back into 4.00. However, breakout traders should continue to look for solid closes above 4.50 for a breakout.

NST Daily: Base pattern and potential breakout trade

A flag pattern has formed at the top end of the range. This implies that price is consolidating at resistance rather than selling off. Look for breakout trades here above recent highs

MML Daily: Retracement back into the upward trend

Strong breakout pattern and price has now dipped back into a great support area. Traders should look for bullish reversals here to get into the uptrend

FMG Daily: Bounce into Resistance Zone

AUDUSD
The Australian dollar touched the highest levels seen in almost three weeks as demand for riskier assets rose amid speculation the U.S will take more steps to stimulate its economy and due to the German constitutional ruling. The Australian dollar gained to make a high at $1.0505 before pulling back to close at $1.046.

From a technical perspective, that downward sloping trendline on the Daily chart will be key to teh future direction of the battler going forth. As I have been stating, the recent strong price action is indicative of a genuine move higher and I do believe a breakout to the upside is likely indeed in time. However, this 1.05 to 1.055 level appears to be short term resistance. The trend remains up and pullbacks to 1.045/1.042 should be strongly defended and remain good entries into the trend.

AUDUSD Daily:
This is the bigger picture triangle pattern I am looking at. 

AUDUSD 60mins:
Breakout above the 1.044 resistance zone yesterday. This is a sign of strength. Traders should continue to follow this upward trend until we see a clear climactic exhaustion pattern. This is not the case currently. 

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