Technicals | Mar 11 2015
Bottom Line 10/03/15
Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 76.20 / 70.00 / 67.80
Resistance Levels: 79.00 – 80.00 / 83.70 / 86.60
Technical Discussion
Interest rate cut in February , on hold in March, and the expectation for April is another cut. Cuts will be the catalyst for our stock market to gain upside momentum. We had a taste of this in February, yet if clear cut evidence is ever needed in relation to the above rhetoric, then look no further than U.S markets and what they have been doing in relation to monetary policy over the past 7 years or so with their own markets still looking strong and at record highs. There has certainly been a reluctance to cut rates in Australia and in part this has been due to an already overheated property market. Yet GDP figures were overall poor last week and the mining boom has clearly flattened out for now, so another rate cut is likely. NAB business confidence figures are out today with a figure above 0 indicating improved conditions so we wait and see. If business confidence can start gaining some traction and maintaining it over the coming months, then post April it could simply be steady she goes for rates. So one more cut may be all that is needed to finally get things going. Interest rates and currencies are closely intertwined so the Aussie is expected to remain under bearish pressures, at least until economic conditions start to improve and interest rates hit a low.
Reasons to be bearish (back to neutral above 79.00 – 80.00):
→ Inflation remains in check in Australia with unemployment an issue
→ Interest rates for the most part at record lows. U.S recently flagging hikes
→ recent rate cut in February puts a second in the spotlight for April
→ higher degree 61.8% retracement still in play
Technically the price points of interest are 76.40 and 76.20. This region is where buyers have recently surfaced and its now just a matter of watching whether they return. Last night price tagged 76.80 and as of typing is continuing to track lower. So a retest of the aforementioned major low zone looks a given. Price is oversold yet there is no divergence in play, with the recent move higher up towards the old major support zone circa 79.00 – 80.00 rejecting post the choppy move towards it. So a best case scenario from here is that a bottom establishes once more just above 76.00, and where another attempt to bounce higher starts to take shape. Our bearish outlook overall remains in place with only a convicted move above 80.00 that sticks switching the stance to neutral.
Trading Strategy
We took an aggressive trade above the 78.00 SaR trigger yet we have since been stopped out at 77.19 post raising our stop that cut the risk in half. Price was clearly stalling up towards new resistance circa 79.00 – 80.00 which was a signal that the timing still wasn't right to be bidding against the prevailing trend. It's unlikely we will be getting involved again on the long side until 80.00 can be broken past, and as for shorting, the risk reward just isn't looking that great from present levels. Time to stay sidelined.
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