The Overnight Report: Technical Torrent

This story features COCHLEAR LIMITED, and other companies. For more info SHARE ANALYSIS: COH

By Greg Peel

Yesterday on Bridge Street saw another session in which bargain hunters moved in after a plunge on the open to stabilise the market at a new level, this time 5150 in the ASX200. The index was down 66 points from the bell and quickly recovered to play out the day around 30 points down. It was the turn of the industrials sector to lead the selling this time while on the other hand, the big miners were sought after and allowed materials to be the only sector to close in the green. Banks and the telco were once again hit.

The early recovery for the ASX200 was not at all related to the release of China’s September trade data, having occurred beforehand, but the more comforting numbers out of Beijing served to provide support for the aforementioned big miners and stabilise the market through to the closing bell.

Chinese exports grew 15.3% year on year in September, up from August’s 9.4% rise and beating expectations of an 11.8% gain. Imports rose 7.0% when economists had assumed a 2.7% decline. Iron ore imports rose to their second highest monthly level of the year and crude oil imports rose to their second highest monthly level ever.

The results provide hope for stability returning to iron ore prices and a restocking phase potentially beginning in China. The Aussie dollar rebounded 0.9% yesterday as a result, to be at US$0.8763 this morning, while the spot iron ore price has jumped US$3.20 to US$83.10/t.

You could hear Twiggy’s sigh of relief from the east coast.

Support at 5150 may again be academic today after yet another 200-plus fall in the Dow overnight, although it depends on how much credence the local market affords the drop. It might be another good day to buy. European stock markets managed to stabilise last night, thus Wall Street avoided the now common spill-over of selling from across the pond. The US indices bounced around throughout a session impacted by the Columbus Day holiday, which saw banks and the bond market closed and stock trading thinner than it might otherwise have been.

This was the setting when at around 2pm, some selling entered the market and quietly tipped the S&P500 into the negative. The broad market index soon broke down through its 200-day moving average – not for the first time recently – and set off technical selling programs. A break through 1900 added to the flood and sent potential buyers scurrying up the river banks to safety. The selling accelerated to the closing bell.

Ebola was cited as a cause of weakness, with the first case of domestic contagion being reported in the US. Certainly this news impacted on airline stocks last night, which were heavily sold, but if Ebola was the overall cause of weakness last night the selling would have begun from the bell. Similarly the ongoing fall in oil prices was pointed to, but lower energy prices are beneficial to the wider economy.

It was just a matter of sell orders in a thin market setting off the computers, in a climate in which the market is constantly reminded that Wall Street hasn’t seen a 10% correction in three years and that’s very unusual.

So will Wall Street see a full-blown correction? The S&P is so far only down over 5%. The potential saviour for the nervous bulls in the market may well arrive beginning this week, in the form of September quarter corporate profit results. There are high expectations for solid earnings reports, and it has been noted that recent strength in the US dollar will not impact on exporter earnings until at least the current quarter. Big banks and legacy tech stocks lead out the results this week, beginning with Citigroup, Wells Fargo and JP Morgan Chase (Dow) tonight.

Quarterly earnings seasons usually switch focus on Wall Street to the micro from the macro for at least three weeks, as the bulk of S&P500 companies publish. But this week sees important European and Chinese data releases, and there’s Ebola, and there’s IS, and Tony Abbott thinks he’s back playing rugby for Uni.

Stability in Europe was accompanied by some renewed strength in the euro last night, sending the US dollar index down 0.5% to 85.45. This allowed gold to respond, for once, with a US$10.40 rise to US$1233.10/oz which may, for once, reflect that all is not right with the world. US bonds, as noted, were closed.

The VIX volatility index on the S&P500 is up another 15% to 24.

China’s import data might have affected a bounce in the iron ore price but not so for oil, which saw Brent down another US$1.58 last night to US$88.11/bbl and West Texas down US27c to US$85.12/bbl. With Iran now following Saudi Arabia and the UAE with big oil export price discounts to clear inventories ahead of next month’s OPEC meeting, at which production quota cuts are expected to be imposed, spot oil prices are finding no support.

The Chinese data did offer a modicum of support for base metal prices, with copper up 0.5%, but no metal managed a gain of more than 0.6%.

The SPI Overnight closed down 30 points or 0.6%, but as noted, the local bargain hunters may be looking for another plunge on the open to wade in once more. Today sees the release of the monthly NAB business confidence survey, which may have an impact, but all eyes will be on Europe tonight for the release of eurozone industrial production and ZEW investor sentiment numbers.

Cochlear ((COH)) and Telstra ((TLS)) are among those companies holding AGMs today.
 

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