ASX Equity Morning Report 14/09/2012

Overnight Market Snaphot

Overnight, risk markets all rocketed higher on the back of the FOMC meeting. U.S. stocks surged, sending the Standard & Poor’s 500 Index to its highest level since 2007, as the Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. The central bank will undertake other asset purchases if the outlook for the labour market doesn’t improve substantially.  Furthermore, the FOMC also said it would probably hold the federal fund rates near zero “at least through mid-2015”.  All 10 groups in the S&P 500 gained. This was a very powerful and loud message indeed. Whether or not it works to help bolster the labour market is another thing. 

No doubt in situations like this, there will be many traders who are in short positions and looking at adverse price marks come the open. Thus having some humility is paramount. In my recent reports I have been looking for upside breakouts and the targets I had for the S&P500, Australian Dollar, the EUR and Gold have been largely hit: http://fpmarkets.blogspot.com.au/2012/09/what-is-ben-going-to-do.html. I do think this is a powerful trend and the charts are suggesting we could see a protracted move higher into year end. As I said yesterday, “Don’t fight the FED is a clear message that I have learnt throughout my career.”  However, in the short term I think markets will need a period of consolidation and a slight pullback before the next significant move higher. The trend is firmly up and looking for patterns to get into this uptrend remains the play I believe.

S&P500 Daily:

S&P500 Emini Key Levels

Support Levels: 1440, 1420/25

Resistance Levels: 1455,1515

ASX200 and SPI Analysis

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

My SPI Range today: 4365 to 4400. Outlier level 4335 support

My SPI plan today: SPI futures closed at 4381 overnight after hitting a high of 4405 overnight. This represents a gap up of some 30points. 

I had been looking for an upside breakout the last few days. Unfortunately, the market never makes it easy and yesterday trading was very subdued indeed in Australia and all the bullish move has occurred in the overnight session! The short term target for the breakout was 4390/4400 and we are not far off these levels come the open.

With such a strong gap up first thing, patience early on will be paramount. I believe there will be strong early resistance at 4390 to 4400 and short term traders could look for tight short scalps out of this zone. However, I do think the higher probability play is to look to join this move higher and I see good supports coming in at 4370 to 4365 early.

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 and then up to 4390. This has now played out.

OZ Stockwatch

Corp Calendar

RIO:   Dividend payment date

News:      

FMG: Shares in Fortescue Metals Group yesterday fell nearly 14 percent to their lowest level in three years, closing at A$2.99 due to concerns over its debt covenants. In response, after the close the company released a statement to the ASX saying "Fortescue is in the process of talking to its lenders about potential waivers in the event that covenants are put under pressure by extended volatility in the iron ore market”. The company remains fully compliant with its debt covenants the company added.

LEI: Leighton Holdings' international owners, construction giants Hochtief from Germany and Grupo ACS from Spain, have increased their authority over the Australian contractor by appointing German and Spanish executives, observers noted yesterday.

LYC:  ADRs rose 8.1% after China Securities Journal reports reported China cut number of permits to mine rare earths by 41%.

MYR:  Bernie Brookes, chief executive of Myer, yesterday cautioned investors against undue optimism triggered by the retail giant’s first reported quarter of a growth in sales from its current
stores in the last two years.  "We're not identifying it as a  trend.  I think the subdued consumer sentiment means we are still in a difficult environment," Mr Brookes said

NCM: Mineral production at Newcrest Mining's Cadia  Valley gold and copper operation in central western New South  Wales has been halted as a result of an operational problem with
the conveying system, industry sources observed yesterday.  It has been estimated that lost output will total between 5000 and 10,000 ounces of gold and 200 tonnes of copper during the two week repair period. 

WOW: May consider A$1b property spin-off,  Australian Financial Review’s Street Talk column says.

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.

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

AUDUSD
Australia’s dollar rallied 0.8 percent to $1.0547 after touching $1.0568, the highest since Aug. 13. It fetched 81.72 yen, 0.3 percent stronger.

In last night’s futures report I wrote:
“that downward sloping trendline on the Daily chart will be key to the 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. The Eur remains in a strong uptrend and I believe the target for this currency is up to 1.30 tonight. At that level there should be strong resistance.”
Thus this has now largely played out. The Australian dollar is now trading at the Daily trendline and EUR hit a high right on 1.03 overnight. I think a period of consolidation will now been needed before a further break higher. I do think that AUD will outperform EUR going forth here given the QE3 announcement.

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

AUDUSD 60mins:
Pullback right into 1.042 and strong breakout given the FED announcement. As I have been stressing, looking for setups into this uptrend has been key. 

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