It looks like Rome really was burning while the US congress fiddled. As the debt ceiling debate dragged on, each day bought weaker economic news from the US and around the world so that support finally failed. I was mildly bearish but not expecting the magnitude of the early falls. It's definitely risk off with the AUD back to 1.073 to the USD from recent highs of almost 1.11. Despite the assistance of a weaker dollar, BHP is lower by 3%.
The Asx 200 has broken the low from last Wednesday and it really looks like the area around 4200 is the next decent support in the short to medium term. The index is at 4349 at 10.20 am.
11.53 The index was down almost 108 points a few minutes ago. We're probably close to the worst point in the news cycle for now because the slowing PMI numbers should take pressure off inflation globally and the local inflationary effects of the flood will be easing too. The research I've read suggests that inventory reductions are forming a base and Chinese activity will probably pick up in Q2. Although you would expect to see consumer sentiment weaken further, thanks to the debt debacle, the overall picture should stabilise and, of course, QE3 is liable to return if it doesn't. Australian stock analysts have high numbers for FY12 and those growth forecasts are liable to be pushed back a half or a year but the market isn't pricing in those expectations anyway.
Our problem is weak overseas markets dragging us lower in the short term. I've clearly made an error in thinking that support would hold despite a few wobbles and the strategy now is just to limit the damage. To that end, I haven't done a trade today as I wait for the dust to settle especially since there is the near term catalyst of reporting season, which may not be a game changer but should provide some grounding.
2.49 I'm still on the sidelines and having a look at RIO. It's down 2.6% and is just below 7800 which has it on a PE of about 8 with next year forecast to be slightly better than this. The chart doesn't look crash hot though with support now looking fragile. I've got a weekly chart below, over 2 years.
I don't mind the chart on a medium term view. It looks like a 4th wave retracement which should hold above the 1st wave high at around 73 before the extended 3rd wave which took it to a high around 89 in mid February. It's a bearish valuation though, I would have expected the stock to be making more of a pennant correction.
3.40 Out of LNC at 260, support was at 269 and 267 and after that failed I was hoping for a retracement to sell into. It didn't happen so I've had to bite the bullet. Also out of the balance of the BLD at 400 which wasn't such a bad trade overall as I sold the first half out at 434 the other day, a loss though. The positions I have left are via options where the premium is pretty low now anyway or where I've missed the stop by so much that I've frozen myself into becoming "a long term investor". Otherwise, longs in ALL and PBG aren't too bad.
4.22 The market cracked the ton to close down 101 at 4333.
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