FYI | Sep 07 2009
(This story was originally published on Wednesday, September 2, 2009. It has now been re-published to make it available to non-paying members at FNArena and readers elsewhere).
It is difficult to accuse the TechWizard of being a lousy comedian. When it comes to timing, he is displaying a knack for it today: on a day when the Australian share market is looking like shedding close to 2%, the Wizard has elected to reiterate his earlier warning that September-October are likely to bring the long awaited correction.
The Wizard remains of the view that the US share market (as in: Dow Jones Industrial Average) might well lose some 1000 points in the upcoming correction.
Other technical analysts have been issuing similar warnings this week. Daniel Goulding, publisher of The Sextant Report, stated this week the share market could possibly stage another final rally, one that would take it to around 4600, but after that it would be all about bears and claws again.
Goulding has to be admired for the staunch persistence he has maintained in holding his negative view throughout the March-August share market rally. Ultimately, maintains Goulding, we will see the ASX200 index at 2700 (compared with above 4400 now and a high around 6900 in 2007).
Technical market analysts at Barclays Capital are equally concerned, noting the strong rise in share prices worldwide since March is at the same time both very impressive and also worrisome, as it opens the gate to a sizeable pullback. The analysts are in particular worried that gains booked since mid-June have not been matched by various other indicators that have accompanied the rise for equities since March.
Note the analysts: EUR/JPY and crude oil futures have merely side-tracked in August, and thus a divergence with further rising share markets has occurred. On Monday, I wrote in this week’s Weekly Insights that market strategists and analysts at various stockbrokerages maintained a positive view for what lies ahead for share markets, but some were a bit worried for the shorter term, in particular regarding commodities.
Barclays technical analysts seem to be backing this view, noting that any pullback in the days/weeks ahead will be counter-trend, meaning once the retreat has run its course, equities should resume their uptrend. This, however, does not mean that the follow-through in risk aversion cannot morph into a more significant correction when it comes to commodities, they warn.
Indeed, warn Barclays analysts, any noteworthy weakness for global equities might bode “very poorly” for the commodity complex, “particularly the energy and base metal sectors”.
This view seems to be supported by bearish signals on price charts for crude oil futures, and for nickel, copper and aluminium futures too.
Note, for instance, that gold has managed to keep its ground despite the USD Index strengthening this week.
As I stated over the past weeks, the Price-Earnings multiple for share markets in the US and in Australia had run well above historical averages on FY10 forecasts, but as a substantial part of the market is prepared to look beyond the trough in earnings -read: FY10- expectations for FY11 are much more important.
One positive factor is that these expectations have been reinforced, and slightly increased, post the FY09 results season.
A second positive factor is that on FY11 forecasts the Australian share market was trading at around 13 times average market EPS, still below the historical average of 14-15.
The main negative factor is that FY11 is still such a long way ahead (and it’s not like there is no possibility for disappointment in the meantime).
To be read in conjunction with “What Now?” and “Market Strategists Re-Assess Post Reporting Season” published earlier this week.
This week’s Rudi On Thursday editorial is not in its usual format, or length, due to the fact that I will be presenting to a closed gathering in Sydney today. My recent analysis of reporting season and the above views and opinions will feature prominently.
With these thoughts I leave you all this week,
Till next week!
Your editor,
Rudi Filapek-Vandyck
(as always firmly supported by the Ab Fab team at FNArena)
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