Still About Iron Ore

Overnight Market Snaphot

US Indices were range-bound for most of the trading day, but a breakdown through intraday lows late in the afternoon led to a rather sharp sell off. The major averages saw a notable divergence as the Dow slipped 0.4% while the S&P 500 and Nasdaq slid 0.6% and 1.0%, respectively.

Technology stocks lagged, in particular Intel which slid 3.8% as it remained under pressure after lowering its guidance on Friday. Apple marked a fresh all-time best at $683.29, but reversed into negative territory and ended down 2.6%.

On the upside, shares listed in the materials space advanced as names within the sector benefited from China's plan to increase infrastructure spending. Companies specializing in construction materials were led by Martin Marietta which added 3.8%, while Vulcan and advanced 2.7% and 6.2%, respectively.

Traders down under will be pleased to know that IRON ORE closed +6.7% to $95.00 overnight.

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 offers a low risk entry into this uptrend. Targets for this move are up to 1450 and possibly beyond. Only a break back down below 1395 would put the uptrend in jeopardy.

Emini S&P500 60mins:

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. 

S&P500 Emini Key Levels:

Support Levels: 1420/1425, 1395

Resistance Levels: 1450/55, 1515

OZ Stockwatch


 

Eco Calendar

1130am AUS     Lending Finance (Jul)

Corp Calendar

CPU: Ex-Div

GRG: Ex-Div

LEI: Ex Div

WHC: Ex-Div

News:

ARI: Geoff Plummer, managing director of Arrium, Australia's second largest steel manufacturer, yesterday said that overcapacity was hurting every major steel producing country in the world.  "We've got a situation where basically in all key markets at the moment there's overcapacity," Mr Plummer said.  "You're not going to move on to a new, glorious outcome in terms of commodity prices - I don't think [China] is going to fall apart, but I don't think they've got any bullets left to charge ahead at 7 or 8 or 9 percent. (SMH)

LLC: Developer Lend Lease yesterday took control of its struggling Abigroup engineering subsidiary and called in its auditors after uncovering peculiarities relating to more than A$1.5 billion worth of ventures.  Four top executives are currently suspended.

MINING SERVICES: Paul Murphy and Vince Smith, partners at accounting group Ernst & Young, yesterday published researched showing that the average debt-to-equity ratio among Australia's 84 listed and 320 private mining services companies was 45 percent to 50 percent compared to mining companies that aim for a maximum of 20 percent.  "Six months ago these companies were wondering how they were going to finance expansion with the demand now there will be a growing number of businesses with increasing pressure on margins and working capital, with little or no room to move,"
the research said. (AFR)

PCL: The first major offshore gas find near Kenya has been made by explorer Apache Energy and its Australian partners, Pancontintental Oil and Gas  and Origin Energy. Shares in Pancontinental jumped by 91 percent following the discovery of 52 metres of net natural gas pay in porous sandstone.

QAN: The company yesterday announced that it would be forced to cut one daily flight to London and reduce its European service even more if the Australian Competition and Consumer Commission did not approve its 10-year alliance with Middle Eastern rival Emirates Airlines.  Analysts believe the deal will win the regulator's approval, but noted that there would be substantial competitive risks in reducing flight.

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: ABY, AGO, AWC, FMG, NCM

-Price/Vol scan and Bearish price action: LLC, QAN, WES, WOW

ASX200 and SPI Analysis

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

The last 2 days I have talked about clear switching going on out of defensives into the materials and resources sector. This theme continued strongly yesterday with AWC, AGO, FMG, MIN, NCM, and RIO all outperforming. Overnight Iron Ore closed +6.7% and thus we should be looking at a positive open once more for these names. However, nothing ever goes in a straight line and after 3 or 4 days of solid gains, today we could well see a climatic exhaustion. Note that many of these stocks are in solid downtrends and will now be into solid overhead resistance levels. Keep these on your radar today.

My SPI Range today: 4310 to 4350. Outlier level 4298 support and 4390 resistance

My SPI plan today: SPI futures closed at 4322 overnight and this represents a gap down of 10 points. Fair Value is currently 2 points.

Yesterday the 4320 level was strongly defended as anticipated here and we are indicated at this level early. Any failure to hold this level early opens up a potential retest of 4310/4300 and I believe this is a great low risk buy opportunity to join this uptrend. Any strong breakdown below 4300 would put this scenario in jeopardy. On the upside 4350 remains strong resistance and we will need to see breakouts above here to confirm a push into the 4390 target level.

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 on twitter @FP_markets for live commentary throughout the day.

NCM Daily: Perfect bounce out of support zone. 

NHC Daily: Base pattern and potential breakout

FMG Daily: Bounce into Resistance Zone

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

AUDUSD
The Australian dollar fell for the first time in three days against its U.S. counterpart amid a decline in risk appetite as China’s industrial output rose the least in three years and investors expressed concern whether Europe’s debt crisis is being contained. Australia’s currency depreciated 0.5 percent to $1.0335 yesterday in New York. It fell 0.4 percent to 80.910 yen after reaching 80.88 yen.

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 1.031.0320 should be strongly defended now and offer a low risk entry into the trend with stops below 1.03. Breakouts above this 1.04 zone open up a retest of the 1.06 level in time.


AUDUSD 60mins:
Pullback into the upward sloping moving averages and the previous breakout zone. Thus 1.03 to 1.0350 should be strongly defended and a low risk buy area with stops below 1.03

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 trader

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