Aussie Market To Breach Technical Support On Thursday?

This story features MACQUARIE GROUP LIMITED. For more info SHARE ANALYSIS: MQG

By Rudi Filapek-Vandyck

Increased losses on the Australian share market in the last hour of trade on Wednesday have caught the attention of professional investors and trading desks at stockbrokerages in Australia, triggering fears the share market might sink through technical support on Thursday, possibly opening up the way to another bout of serious losses for the share market.

Before we continue, let’s have a look first at what we wrote on Tuesday this week:

“These remain testing times for investors with no patience. Maybe one of the latest updates from a technical analysis point of view by one of the stockbrokers can give some guidance for what the future might bring, especially since we’ve seen reports elsewhere that were pretty similar in where current support and resistance levels are for the Australian share market. The S&P/ASX200 is seen as moving in between 5700 and 5500 and that is no coincidence as these are main resistance and support levels respectively.

“In other words: the index will have to wrestle its way through 5700, and hold on to it, to be able to confidently move towards 6000 and beyond again. Alternatively, and close market watchers will have noticed how the index seems to find support every time it moves close to 5500 – that’s where main support is located. Were 5500 to give a fall towards 5300 is considered likely. For what it’s worth: this technical chartist in particular believes the bears are still in control suggesting if the index moves towards 5700 investors should go short and it’s probably better to go short anyway as support at 5500 is likely to receive some serious tests in the weeks ahead.” (Quotes & Shorts, February 19, 2008).

Today, both the Wall Street Journal and the Financial Times published news stories (about financials, in case you dared to ask) that seem to have triggered another global sell-down of financial stocks. The WSJ pointed out that investment banks such as Credit Suisse and UBS are facing more losses and write-downs as the global financial crisis has now spread to deteriorating corporate debt. There’s a direct link here with the wave of leveraged buy-outs that sweeped through global financial markets prior to August last year.

The FT reported US banks have been sneakily borrowing US$50bn through a new facility set up by the Federal Reserve Bank to help ease the credit crunch. But what really spooked the markets is another FT report that the masters of the leveraged buyouts universe, Kohlberg Kravis and Roberts & Co probably better known as KKR, have been unable to rollover billions of dollars of commercial paper.

As an institutional trading desk at one of the stockbrokerages in Australia suggested this afternoon: US investment banks are facing another wave of selling and investors on the Australian share market already anticipated this with Macquarie Group ((MQG)) losing 5.5% and Babcock & Brown ((BNB)) 4%. As the market closed right on its technical support today, concerns are tomorrow will simply push it lower, opening up the gates to new lows.

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