Archive through April 25, 2008

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ken

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Post Number: 505
Registered: 04-2003

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Wednesday, April 23, 2008 - 01:36 pm:

Rudy,

I'm responding to your post 1345 and haven't read past that, so if my comments are irrelevant so be it.

I have also been watching the medium term trendline you have drawn, but I have just seen it differently, as the neckline of an inverted head and shoulders. This would have a target much higher than your 5768, possibly up to 6400-ish. Comments anyone?

Ken

ody

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Post Number: 2400
Registered: 10-2006

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Wednesday, April 23, 2008 - 02:51 pm:

TRACKING SIDEWAYS

It's very interesting to see such a variety of comments, based on both T/A and F/A, as to where the markets might go. Ken, I think that on an F/A basis 6400 for our market is extremely unlikely any time at all soon. Markets do get silly, but although the US, in particular, has shown a tendency to ignore fundamentals of late, for our market to go up to 6400 it would need the kind of recklessness/bravery that Australian investors don't seem to me to have - particularly not now, even though they are toying with pushing the market up. It would require very little to "pull them back into line". As our market has gone sideways during the last three months - at a lower level than the S&P 500, which however has also gone sideways - I feel that it is most likely to stay there, or to fall back into that zone if it briefly dared to go beyond it. Like Resillent, I don't see a quick fall to a bottom either, for many investors are either ignoring the latest bad news or trying to interpret it positively. But there will be enough of it, I feel, to keep them in check. The zig-zagging that we have seen in both markets shows how opposing tendencies remain at work, and fundamentally as well as in terms of sentiment-shaping news, I should have thought that on balance a sharp deviation, up OR down, would probably soon get "corrected", AS THE MARKET WILL WANT TO HAVE FURTHER NEWS BEFORE IT REALLY MAKES UP ITS MIND. At present it is inclined to react to e.g. good company results here, bad ones there - and for a TREND to develop, it will need something far more consistent to underpin it.

rdumas

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Post Number: 1351
Registered: 11-2006

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Wednesday, April 23, 2008 - 03:46 pm:

Hi Ken,

One of the reasons why Ody and my posts sometimes get volumous is that we try to cover every point relating to what ever we're posting about. The post 1345 that you speak of was one of my more abbreviated posts and hence I didn't cover where I got my target from. Let me explain.

As I have mentioned in previous posts I believe that one of the greatest TA tools that we have at our disposal are levels of resistance and support. This applies to horizontal levels as per my post and also resistance and support created by sloping trend lines and channels.

As you can imagine when the market is lower than the all time high there may be a multitude of potential resistance levels between where the market currently sits and the pervious all time high. To draw all these levels onto my chart would create a very busy looking chart and only confuse readers of my posts. For that reason when I am predicting a target level I tend to pick one that is reasonably close to the market action and leave off all the others.

I see 5768 (shown in blue) as the next main resistance level. There are obviously many others above that level that can be derived from previous levels of resistance and support, inverted head and shoulders, Fibonacci levels, etc (or any other type of TA pattern) patterns.

Once a

I hope that clarifies my previous post.

rdumas

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Post Number: 1352
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Wednesday, April 23, 2008 - 04:42 pm:

Hi Ody,

What could allow our market to move upwards is the banks. Using Bassanese from the latest issue of Smart Investor as my information source I quote some of the interesting points he raises in his article.

If one doesn't want to read the numerous points below I would suggest that the main argument is that whilst our banks are in a far superior position to those overseas their share prices were pulled down around 30% broadly in line with the share price falls of their US and European counterparts from their peaks early last year. On that basis it would appear reasonable to suggest that the banks were over sold.

The ANZ reported today and whilst its earnings have dropped 14% and they have made larger provisions for bad debts than previously they certainly don't look like they are about to collapse in a screaming heap. On information that I've seen so far the ANZ is probably one of the more vulnerable of the big four banks and its share price went up 4.21% after they reported thus indicating that the market is somewhat relieved that things are any where near as bad as expected.

1) Unlike many countries Australia has a concentrated banking industry dominated by a handful of major banks. This has led to a cosy industry lacking strong competition.

2) Unlike many countries Australia's banking system continues to be highly profitable. The five largest banks recorded an aggregate pretax profit of $27 billion over the last year.

3) Banks earnings have been bolstered by relatively low exposure to problem loans, robust growth in funds management income and rising market share due to funding problems of their non bank competitors.

4) Problem loans associate with the housing sector in Australia only represents around 0.3% of loans whereas banks in the US and Europe are reeling from the mortgage default rates. The RBA considers that most non performing housing loans are well covered by the value of collateral.

5) The RBA has acted much faster than their US counter parts in raising interest rates to puncture the housing boom.

6) Non conforming home loans (the closest equivalent to the US sub prime market) accounts for less than 1% of outstanding mortgages compared to 13% in the US and the banks share of this market is relatively small.

7) Our banks are less reliant on the often highly volatile income derived from speculative financial market trading and more reliant on steady fees from funds management

8) The RBA says that trading income only represents around 5% of the profit of our biggest banks whilst wealth management generates a reliable 13% of income.

9)Large companies finding it difficult and expensive to raise funds through the corporate bond market, bank business credit outstanding increase at an annualised rate of about 30% over the six months to January. Business credit has been growing at its fastest rates sincce the late 1980s.

10) Whilst housing credit growth has slowed retail deposits have risen strongly (flight to safety).

There is no doubt that banks face tougher times but the banks have successfully cut costs. The RBA says that the five major banks have lowered their cost to income ratio by 2% points.

ody

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Wednesday, April 23, 2008 - 06:33 pm:

Is this readable?

This is an interesting report on US investor sentiment and its fragility, if it proves readable. I hope so. It's not a locked item.

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=78C1EC56-1871-E587-E1CC538 85FE7D17D

ody

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Wednesday, April 23, 2008 - 06:44 pm:

ENTHUSIASTIC MARKET

BHP went up significantly today. One would not have thought so in reading the following brief report from Huntleys'. I don't mean that this is all negative - of course not. But I still find myself surprised. Possibly the positives really do significantly outweigh the disappointments? Iron ore and oil are, of course, both winners, in principle. And to see an INCREASE in production (in both cases) is definitely encouraging.

--------------------------------------------------
BHP Billiton Limited (BHP)
Weaker 3Q08, Prices Largely Override
Recommendation Accumulate
Share Price 45.10
Event

3Q08 output overall was weaker than expected. Some of this was well flagged including severe weather impacts on Queensland coking coal and power restrictions to South African aluminium. Others such as copper, energy coal and diamonds did surprise. The impact was muted by a strong lift in crude output, up 32% to 16mmbls and higher than anticipated iron ore production. It's the right time to be increasing crude volumes with oil price pushing US$120/bbl.

rdumas

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Post Number: 1353
Registered: 11-2006

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Thursday, April 24, 2008 - 08:59 am:

MARKET ACTION TODAY

I don't know how others see it but I suspect that our market will end up taking profits today. The slight advance in the S&P500 over night was not very convincing and still very much respecting the resistance above it. Our market has the prospect of the US market having another two trading days before we recommence trading on Monday. I could be wrong but I think that the big players will lock in profits whilst they have them and wait until Monday to make the next move depending on what the US does over the next two days.

Once again whilst waiting for the IC software to update later today, I have drawn in last night's action on yesterday's chart. Hopefully I have drawn it accurate enough to get a feel for what happened.

A spinning top candlestick formed last night. These indicate that there is a tug of war between the bulls and the bears at the moment and neither side is willing to give ground. It also is an indication that the market is losing momentum and when near the top of a cycle can often (not always) precede a fall.

deanrosario

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Post Number: 1394
Registered: 11-2002

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Thursday, April 24, 2008 - 09:40 am:

Hi Rudy

If we look at the XJO weekly chart, we are very close to a reasonable resistance level around 5670ish.

Additionally, the weekly 20 ema should provide a further reason for traders to take profits fearing a bounce down next week.

If we agree the market is likely to fall today, we then need to figure out what would be a reasonable target for support. The XJO's 2 hour intraday chart suggests to me a move to 5600 would be reasonable.

However, the scenario I've described above could work in reverse ...

That is the market could seek support of 5600 during the morning session and then rise in the afternoon to settle at the 5670 resistance level as traders wait for a surge up next week!

So, I guess, I'm saying that, today, I reckon the market could go:

(a) up, and then down; or
(b) down, and then up!

How's that for telling you nothing and hedging my bets!!

"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

"Hope is a dangerous thing. Hope can drive a man insane." Ellis Boyd "Red" Redding, played by Morgan Freeman, in 'The Shawshank Redemption'.

rdumas

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Post Number: 1354
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Thursday, April 24, 2008 - 11:10 am:

Hi Dean,

Just back from my regular morning walk. I have just had a look at your post. I think that you summed it up in your last sentence.

I still stick to my earlier post prediction. I believe that regardless of what happens during the day, the market should close down today. If I were forced into predicting a likely close level I would think that it would be somewhere between 5560 and 5600.

(Message edited by rdumas on April 24, 2008)

deanrosario

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Post Number: 1395
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Thursday, April 24, 2008 - 11:22 am:

Rudy

What a difference an hour makes!

The way the XJO sliced through the 5600 support I reckon you are spot on.

Unless the XJO can just as quickly bounce back and hold above 5600, I reckon your range is spot on, with the XJO oscillating between the low already formed and the midpoint of today's high/low range, which just happens to be .... 5600!

However, if the XJO moves back above 5600 quickly - in the next hour or so - and hold above this level, I reckon we will head back towards yesterday's close by day's end.

(Message edited by deanrosario on April 24, 2008)

rdumas

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Post Number: 1355
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Thursday, April 24, 2008 - 11:32 am:

Hi Ody,

Aren't you and I lucky that we aren't members of the Clime Value Growth Fund? I wonder how much they charge for such spectacular results.

http://www.clime.com.au/cvgf_docs/CVGFMarch08InvestReport.pdf

rdumas

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Post Number: 1356
Registered: 11-2006

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Thursday, April 24, 2008 - 12:15 pm:

Hi Dean,

I find that when a market is driven in a particular direction it's feasible to assume that it will meet strong resistance at a particular level based on previous resistance or support levels. When a market is in 'wait and see' mode I find it much more difficult to ascertain where it will end up.

It will however be interesting to see where the professionals close the market today. Anything is possible from where I sit.

ody

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Post Number: 2403
Registered: 10-2006

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Thursday, April 24, 2008 - 01:20 pm:

HIGH PRICES FOR STOCKS THAT PRODUCE NEGATIVE RESULTS

One interesting feature we have seen much of, particularly in the US, but increasingly also elsewhere, is that of stocks going up when producing a result INFERIOR to the previous comparable one.

This, of course, looks all out of kilter. But - and this is important - it is one of the reasons why markets go up more than seems logical. Some of these jumps (again, especially in the US) have been very large indeed.

Clearly, this phenomenon will not continue. Let us take, here in Oz, ANZ as an example. People found the result less bad than they had feared (God knows why), so the stock was taken up more than 4% yesterday. A modest rise by American standards, but a rise all the same. Right now, it is pretty well maintaining this level.

If we assume that the stock had been oversold, the question then becomes whether the 4% has tolerably made up for the overselling. Having looked at the ANZ result in some detail, I can only agree with Charlie Aitken, who compared it with BHP for the Eureka Report, that the ANZ result is a proper shocker, and that it does not inspire me with any confidence for the future. David Bassanese may think that our banks are at much too low a level and have a point. It must be remembered, however, that on an INTERNATIONAL basis our banks have, in fundamental terms, been habitually OVERvalued: remember for example CBA at a PE of more than 17 not long ago. That is because (a) banks HAD done very well during the 90s and early years of this century, and (b) because their "oligarchic" position made people feel safe.
I think that the ANZ jump had much to do with the fact that, despite bad results, the company promised to maintain the dividend.

Personally I have no doubt whatever that banks will face a much harder future, for the time being, than they have for a long time, and that they are exposed to genuine difficulties in borrowing; what they have chosen to expose themselves to; and making profits comparable to those of the past. So I think it is quite possible that the 4%+ will be seen to have done all it needs to in order to "revalue" ANZ, and that it will take a long time before many people will be keen to buy the stock.

My point does not however consist of bank-bashing: ANZ is only an example. We see plenty of stocks suddenly rising - often SOARING - when news is not as bad "as expected".

My guess is that this does not lay a foundation for these stocks actually to RISE impressively after this initial "correction" upwards. They will have to prove, not just that they can produce results that were not as bad as expected, but that they will be genuinely impressive: only that will give people the sense that the companies are set for very real GAINS.

In many cases that will not be easy. I also note that quite a few prices are actually not as low as one might think, and are still based on FORWARD ESTIMATES OF EARNINGS CALCULATED SOME TIME AGO. With the various difficulties ahead, and de-leveraging still occurring, quite a few companies are probably not really being judged accurately, at current prices. It is perfectly possible for a company to be, say, 20% down because it SHOULD be 20% down. De-leveraging is meant to take prices down to a level more realistic, for the times, than the prices that were paid previously now would be. If so, an ongoing rally upwards is very difficult to believe in, notably because the market recently has been pretty bullish in taking up quite a few prices.

I can only find about ten stocks (hardly that many) that IN PRINCIPLE I should like to buy. But I feel uncertain (a) about the levels that, individually, they should be bought at, and (b) about the market in general. I have difficulty seeing the market in general going up much beyond the current level, and if it does do so then I think that will mean a very real increase in risk, given ongoingly bad fundamentals worldwide, with, of course, some exceptions: both hard and soft commodities that will be strongly needed, notably in BRIC countries, but often also e