Worldwide markets are poised on a knife edge. We have seen the first signs of the “stimulus” rally of the past year and a half faltering during April and May this year. The ASX 200 fell 17% in a little over a month and since then we have seen the markets treading water between 4200-4600 in the ASX 200.
The midpoint of this range is 4400 which is exactly where the market is trading as I write. This point is crucial for the future direction of this market. A failure under this level has some large repercussions. It is one of those points in a market where the intra-day chart will affect the daily chart, which affects the weekly chart.
It is where the smallest to the largest forces in the market are all in alignment and can cause a very sharp move in a matter of days. This will be a surprise to many but will be business as usual for the charts as they continue to trace out the same universal patterns that trap the great bulk of traders in bad positions.
As this market stands now, we have exactly a year’s worth of buying that is out of the money. There is always a fulcrum point where those buyers start to capitulate en masse. We are getting very close to that day.
The weekly charts show a market that has crashed between 2007-2009 and then turned and rallied to the 50% Fibonacci level of 5000 over 2009-April 2010.
We are now at the point where the bear market rally is looking dead and buried and a resumption of the downtrend is about to occur.
The long term trend has already turned down in May when the 35 day MA crossed with the 200 day MA. The rally of the past month saw an intermediate uptrend in place which is on the edge of failing with the 10 day MA about to cross with the 35 day MA to the downside.
Therefore we are about to see all trends aligned, from the short term to the long term trend and they are all pointing down.
The distribution of the past year is looking very tired and another retest of the c.4200 lows in the ASX 200 is going to crack. That will give immediate targets to c.3900. And below there it looks very scary indeed.
If the market does crack under this 4,400 level then I wouldn’t be surprised to see the market swan dive to 3,900 in a matter of weeks.
It must be remembered that September is the worst month of the year for equity markets. This year is shaping up as a potential doozy with US economic figures continuing to fall off a cliff and now signs of real stress emerging in US Commercial Real Estate.
Without stimulus funny money driving the economy, we are seeing that real economic weakness lies behind the mirage. Bottom up and top down forecasts for earnings are still way too optimistic. When the penny drops, this market will be a lot lower in a flash.
The S+P 500 chart is also in a very precarious position resting on its Point of Control of 1070. The US Dollar has bounced off long term support and is about to head into intermediate uptrend. The Japanese yen is at levels it hasn’t seen for 15 years and the bond market is continuing to rally to 60-year low yields.
It may be tonight or next week. But prepare for a sharp sell-off in the coming days.
Murray Dawes is a former Sydney pit trader and is the editor of Slipstream Trader, a weekly forecasting service designed to make small-cap gains from blue chip shares.
Labor Cornered – Four Cornered
By Nick Hubble
[Ed note: Daily Reckoning Week in Review editor Nick Hubble will be filling in for Kris Sayce today.]
The bean counting continues.
But a hung parliament isn’t such a bad outcome. As the media has gone to great pains explaining, other countries hang their parliaments all the time, in a manner of speaking. The French favour the guillotine to a noose, though. And, according to the Age columnist Michael Pascoe, despite being hung, the parliament hasn’t been drawn and quartered, so the gore was held to a minimum.
This was a disappointment to George Megalogenis from The Australian. He had hoped for a bloodbath between the rivals. He wrote that, “The divide between Left and Right would pit the AFL states against the rugby league states – that is, Julia against Tony.”
Maybe a footy game would have been a good way to decide the affair. The whole thing would only last 80 minutes…
Pascoe goes on to analyse the old political risk argument in his article. A hung parliament causes uncertainty for financial markets and the economy. But markets didn’t tank on Monday’s opening. The ASX/200 went back and forth across its opening level (4,430) no less than 21 times during the day. Talk about indecisive. This could be interpreted in several ways, none of which are helpful to the forward looking investor.
At Money Morning’s sister publication, the Daily Reckoning, we would suggest not forming a government at all. In that sense, the election has been a rampant success. Let’s see how it goes for three years. No new laws. No changes to existing ones. No political nonsense on TV. The public sector continues as it has done, without any changes. And politicians could find a real job – or go on the dole as Dan suggested on Monday. The result would be increased certainty.
And we wouldn’t have to worry about the disaster scenario Pascoe outlines, “Heavens knows what might happen if US investors realise that, on the American political scale, Tony Abbott is a rabid socialist.”
Where does that leave Labor?
Well, apparently it leaves them Shorten. Bill Shorten to be precise. He is tipped to topple the original tip toppler, Julia for the next election. “Leading betting agency Centrebet has Mr Shorten, a Victorian Right figure who is married to the daughter of Governor-General Quentin Bryce, a $2.70 favourite, with Ms Gillard at $4.10.”
The Governor-General is seeking legal advice on whether she should step aside in the decision on who will govern. It all reads like the situation some sort of politically corrupt African government would be in, not Australia.
But before this particular mess could make it to the front page news, Labor has found some other ways to wobble. Mark Arbib’s absence from the Q&A TV show was pounced upon by Malcolm Turnbull. We even got to see some very poor ventriloquism from the former Liberal leader.
The striking thing about the past few years of Australian politics is how many times the parties have changed their leaders. Beazley, Crean, Latham, Beazley, Rudd, Gillard and now some new hopefuls. Howard, sort of Costello, Nelson, Turnbull, Abbott. Australia is not characterised by political risk. It’s a conveyor belt of political careers which end badly.
Also set out to end badly is the Aussie homeownership dream/facade. The property spruikers are well and truly in trouble. How do we know? Just check out the headline on the link to the real estate section of The Age:
Having discovered they are in for a real struggle, property investors have diversified into a more successful industry in online dating advice.
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Fluoride water ’causes cancer’
‘We recognise the potential benefits of fluoride to dental health,’ added Wiles, ‘but I’ve spent 20 years in public health, trying to protect kids from toxic exposure. Even with DDT, you don’t have the consistently strong data that the compound can cause cancer as you now have with fluoride.’
Half of all fluoride ingested is stored in the body, accumulating in calcifying tissue such as teeth and bones and in the pineal gland in the brain, although more than 90 per cent is taken into the bones.
http://www.guardian.co.uk/society/2005/jun/12/medicineandhealth.genderissues
“It ain’t what you don’t know that gets you into trouble.
It’s what you know for sure that just ain’t so.”
– Mark Twain
“Contrary to popular belief, gold is not an especially volatile asset. Over the past 10 years gold’s annualized price volatility has been just 15.8%, compared with 41% for oil, 21.7% for the GSCI and 18.4% for the S&P 500. In addition, unlike most other assets, gold is more volatile on the upside than on the downside, as negative economic news tends to induce flight-to-quality flows out of riskier assets and into gold.
Historically, gold has exhibited an inverse relationship to the dollar–on the order of –60%–making it an effective hedge against dollar weakness. The price of gold also tends to rise when inflation spikes up. During years in which inflation exceeded 5% since 1971 (when gold was allowed to freely float), gold rose by an average of 14.9% in real terms, far outperforming other financial assets such as equities, bonds and other commodities.
In sum, gold’s deep, liquid and accessible market, coupled with its low correlation and tame volatility relative to many other assets, as well as its long history as a dollar and inflation hedge make compelling arguments for its inclusion in both private and institutional investor portfolios.”
CHART OF THE WEEK, plus summaries of articles.
http://www.bmgbullion.com/lib.pl?rm=show_document&record_id=733
Nick @ 29 – Unbelievable. Obviously, Ahmadinejad blinked.
Nick @ 30 – WOW, I did not know that. UNBELIEVABLE!!!
And, the bastards have finally succeeded, and succeeded without an overt military takeover. Americans must be the most innocent nation on Earth as to the true nature of their state. They have bought the propaganda transmissions holus bolus.
Come to think of it, Australia is not that different.
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