FYI | Apr 07 2006
We had a feeling it was going to happen this week and when it did on Tuesday, we thought let’s wait and see first. Fact is several leading brokerages have been scrapping stocks from their coverage recently and that in itself may have had an impact on the numbers (well, it did).
On Tuesday the amount of Hold/Neutral recommendations in FN Arena’s universe of ten leading stockbrokers and equity researchers dipped below 51% in a trend that saw the number move gradually downwards. It dipped back on Wednesday, but this morning it fell further to 50.73%. That is as low as we have seen the figure over the past four years.
Is a market correction building? Well, long time readers of our analysis will remember that so far every time the relative number of Neutral recommendations fell below 51% over the past few years share prices retreated and brokers downgraded some stocks, pushing the number above 51% again.
Is it a coincidence that on the morning that the figure has again fallen below 51% the Australian share market is seeing red? We don’t know, as said earlier, several cessations of coverage have had an impact as well. But we will be keen to see what’ll happen in the week before the Easter break.
Other commentators, such as Tolhurst Noall’s Marcus Padley, have already suggested a correction could possibly hit the market around Easter.
Having said that, we are in a bull market, there’s no denying it, and share prices have rallied back rapidly after every recent correction.
Whoever remains bullish about the short term prospects of this market can maybe take heart from today’s comments by Tolhurst Noall’s technical chartist Clive Henley who reports that "In the opening months of 2006 sideways oscillation has formed a congestion area around 4850 (on the 50 point chart) and this area is also targeting 5400". (We know it sounds a bit technical, that’s why we put it in between quotation marks).
Henley again: "On a trading basis using a 10 point chart the current advance is targeting 5310. There is no resistance. Nearby support levels are 5200 and 5150." What this means in layman terms is that technical analysis suggests the current run still should have some breath left with no technical resistance on its way to take the S&P/ASX 200 index to 5310 or possibly even 5400 (It’s at 5200-something now).
Henley makes a reference to the famous crash of 1987, stating "the share price index futures contract continuation formed a major base pattern subsequent to the 1987 crash at around the 1500 level. This provided the basis for an initial upside target of 3800 and a longer term target of 5400."
Just for your information: the amount of Buys currently stands at 36.37%, which leaves 12.91% in Sells.