ASX Equity Morning Report 31/08/2012

Overnight Market Snaphot

It wasn't quite the fireworks many were expecting. US indices got off to a strong start, buoyed by a positive session in Europe on news of a capital injection into Spanish bank BFA-Bankia. However, stocks soon stumbled when Federal Reserve Chairman Ben Bernanke did not hint at additional easing. Mr. Bernanke once again commented on the stagnation of the labour market, calling it a "grave concern". Stocks swiftly recovered when he reaffirmed his commitment to act if economic conditions worsen. Indeed, he summed by saying,  "the hurdle for using  non traditional policies should be higher" but that "we should not rule out the further use of such policies if economic conditions warrant”. As a result, the S&P 500 finished higher by 0.5%.

Gold was the bigger winner of the night with some very bullish price action. Initially Gold fell to hit a low of $1647.10 per ounce, but the move was short-lived and the yellow metal reversed sharply as investors digested the remarks. Gold continued to climb higher as floor trade progressed and hit a new high since April of $1688.30 per ounce. Iron Ore finally managed to put in a positive session and closed +0.79% to 89.4.

Note that over the weekend, China released its PMI numbers which have slipped to 49.2 vs. expectations of 49.8. As a consequence, the Australian dollar has opened lower to $1.0284 vs. $1.0322 at the close of trade on Friday. This will likely put the Australian equity market under some pressure first thing.

From a technical standpoint, the low end of the recent ranges were tested and held on Friday. Indeed, in my futures report I said “a potential plan for short term traders could be to BUY Emini S&P500 1395 and ESTOXX 2400 first and if the market fails to hold in, look to flip positions and short to follow the breakdown lower.”  The Emini S&P500 hit a low of 1397 and Eurostoxx made a low 2397 before staging a strong 50 point bounce. Thus, these levels become markets going forth. The market remains in an uptrend and despite the deteriorating technical backdrop, traders should focus on breaks of these levels to confirm a deeper correction. Possible upside targets remain 1420 to 1425.  

Note that tonight is Labor Day in the US which is a federal holiday.

Emini S&P500 60mins:

Price bounced off the low end of the range and the support zone. We are now trading right back into the middle of this range with no clear signal.

S&P500 Emini Key Levels:

Support Levels: 1400/1395, 1350

Resistance Levels: 1415/20, 1450

OZ Stockwatch

Eco Calendar

11.30am AUS Retail Sales (July)

Corp Calendar

AIO:      Ex-div 4c

AMP:    Ex-div 12.5c

BHP:    Ex-div 54.6c

BPT:     Ex-div 1.5c

CGF:    Ex-div 10.5c

FXJ:     Ex-div 1c

MRM:   Ex-div 6c

MMS:   Ex-div 25c

QRN:    Ex-Div 4.6c

RHC:    Ex-Div 34.5c

RMD:    Ex-Div 1.7c

SHL:     Ex-Div 35c

SWM:   Ex-Div 6c

WOR:   Ex-Div 51c

Analyst Rating:

GRR: Cut to neutral from overweight at JPMorgan; PT A$0.75

News:

BHP:  Earnings may be cut by an average of 55% over next 3 yrs should iron ore spot prices stay at
 today’s levels, Macquarie says. RIO’s earnings may be cut by average 80% should iron ore spot prices stay at today’s levels.

DML: Says unaware of any unannounced info which could explain recent trading activity in its shares (Bloomberg).

GNS: FY net loss widens to A$903.9m after writing down forestry related assets; sees 2012/13 earnings materially less than 2011/12; share suspension continues

HVN: Gerry Harvey, chairman of Harvey Norman yesterday announced that the electronics and white goods retailer would not be returning A$655 million in franking credits until earnings recover.

MF Global: Federal Financial Services Minister Bill Shorten has postponed the closing of a loophole in client money legislation that was uncovered by the A$310 million collapse of derivatives broker MF Global.  The minister announced that reforms to remove  the hole, where brokers could hedge with counter-parties when  dealing in derivatives using funds in clients' segregated  accounts, were being delayed due to consideration for the effect  on the industry and the compliance costs it would bring. (AFR)

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: EVN

-Price/Vol scan and Bearish price action: ASL, BKN, BHP, DOW, and MND.

-Support:

BHP: 32.80 to 33.00. A strong base pattern built under this 33.00 neckline but the stock failed to hold the breakout above this zone. There has been a strong close back down below this support zone and this is a “failed breakout”. These failed patterns are indicative of underlying weakness as the breakout failed to uncover any additional buying. Please see yesterdays post on “failed patterns”: http://fpmarkets.blogspot.com.au/2012/08/the-most-important-rule-in-chart.html. The target is potentially to the previous swing low at 30/30.50.

FMG: 3.30 to 3.40. Strong breakdown through the 3.85/3.90 support level. Target is 3.30/3.40 potentially based on the weekly chart.

NCM: 24.50 to 25.00

STO: 10.85 to 11.00

RIO: 45.00 to 46.00

-Resistance

ANZ:  25.00. A confluence of resistance levels and trendlines coming in here.

IAG: 4.00 to 4.10

ASX200 and SPI Analysis

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

Earnings season is now behind us and no doubt is was a tough one with the focus being on the slowing commodities cycle. On average, earnings have been downgraded by about 6% for the top 200 companies since the start of the season (AFR). The biggest losers were ABC, BLY, MGX and UGL, whilst the outperformers included the RMD and PRY. 

It is a big week on the economic calendar with the RBA interest rate decision on Tuesday and GDP figures out on Wednesday. Note there is a whole host of events coming up in Europe as well such as the ECB meeting on the 6^th September. With summer holidays over and these announcements in the pipeline, we should see volume return and some major moves ahead.

My SPI Range today: 4300 to 4340

My SPI plan today: SPI futures closed at 4332 on Friday night and the Emini S&P500 has opened at 1405 this morning which is approximately unchanged from Fridays close. Note that the SPI may be under early pressure due to the weaker PMI number.

There is an open gap from 4335 to 4340 and this should prove formidable resistance in the short term. Given the distribution pattern last week and breakdown through 4350, I favour selling into this zone on any bounce attempt. A risk to this scenario would be a move back above 4350. On the downside, there should be early strong support at 4315/4310 and this is the early target for any weakness. Ultimately, breaks of last week’s low would confirm a new trend lower and deeper correction.

XJO Daily:

Reversal right at the top end of the range. Price is now retracing back into the upward sloping moving averages and thus offering potential long setups for trend follower. 

SPI 15mins:

Clear res zone at 4335 to 4340. Outlier level is 4350

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.

ASL Daily: A breakdown trade

Another bearish day on Friday confirming the setup shown here. Price has now entered the first target zone and thus the risk/reward opportunity for shorts has mostly played out.  

BKN Daily: A breakdown trade

A solid breakdown through the 6.00 support level. This opens up a potential retest of the swing lows at 4.60

MAH Daily: A breakdown trade

A failed breakout above the 63c neckline. A break of the upward sloping trendline in the coming days would be bearish and open up a potential move to 50c and lower

NCM Daily: A setup for the trend follower

Price has now pulled back into strong support and the upward trend. Risk for the bulls would be a meaningful close below 24.50

AUDUSD
Despite the bounce seen in overseas equity markets, the Australian dollar failed to follow through meaningfully to the upside. A high was made at $1.035 and price has gapped down first thing to hit a low of $1.027 due to the softer China PMI data. 

From a technical standpoint, the analysis and outlook I have provided here continues to play out. AUD remains in a short term downtrend and has triggered a short term Head and Shoulders topping pattern. As long as price remains below 1.044, traders may continue to focus on this downtrend with a first target into 1.02. AUDJPY, a key risk asset, continues to grind lower after the “failed breakout pattern” and the target is also still someway lower. Focusing on the trend and not trying to pick bottoms has paid dividends in this pair over the last 2 weeks.

AUDJPY 60mins:
Still trending lower into the target zone. 

AUDUSD 60mins:
Still trending lower into the target 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