Technicals | Sep 18 2012
By Michael Gable
We have a very intriguing week ahead of us. I’ve been cautious of a pullback in the equity markets once the confirmation of an expected QE3 came through. The unlimited nature of it has seen the market initially react stronger than anticipated. However, as the focus turns to the rest of the economy, can we maintain this momentum, at least in the short term?
I’ve spoken before of the need for the resources to grab the baton and run with it in order for our market to move higher. To answer that, we still need to consider what is happening with our largest export partner.
If QE3 helps the US economy, then it will aid export growth in China. However, greater inflationary pressures from commodities could lead to stagflation in China. While inflation doesn’t appear to be an issue at the moment in the US, it is starting to creep back in China. This could inhibit Chinese demand as the government becomes more cautious on their own stimulus. With QE3 we have an increase in commodity prices for the short term. But prices will remain below their peaks. We are also seeing a decrease in Chinese demand, and a high $A is keeping costs high over here.
As such I am expecting more volatility while investors figure out what is going on. Our major miners have had a nice bounce here in the short term, but I expect the volatility will give investors another chance to enter at cheaper prices. The 10 year bond yields for Spain and Italy that caused me much concern over the last few months have now come down significantly during the last couple of weeks. So the bond market, which cannot be ignored, is telling us that the probabilities of a sharp sell-off have decreased significantly – for now. But we must continue to keep an eye on these warning signs. Although they reached record highs recently and the market held up, next time we may not be so lucky.
While the XJO appeared to be losing momentum early last week, it staged a surprising run up in the last few days to retest our August high. We won’t know for another day or two if this is a false break (which would result in our market selling off). If it is not, then we need to stay with it and expect another 50 points to the upside as we retest the May high. After that, we could either see our market sell-off savagely to under 4000 or see a very volatile sideways consolidation that lasts for a few months. With a few of the danger signs dying
down recently, the chances of that savage sell-off have reduced, but it is still a possibility given the low volumes leading us up to this level.
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Visit Michael Gable's website at www.michaelgable.com.au/.
After leaving Macquarie Bank's Securities Group in 2008 after many years of service, Michael has gained a highly regarded reputation in the financial services industry. As a Private Client Adviser with Novus Capital, Michael has become a popular live commentator and analyst for Sky News Business Channel’s “Your Money, Your Call” program. He is also the author of the weekly stock market report “The Dynamic Investor”.
Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management.
Michael deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.
Michael is RG146 Accredited and holds the following formal qualifications:
• Bachelor of Engineering, Hons. (University of Sydney)
• Bachelor of Commerce (University of Sydney)
• Diploma of Mortgage Lending (Finsia)
• Diploma of Financial Services [Financial Planning] (Finsia)
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2
Disclaimer
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