Archive through July 02, 2008

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rdumas

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Post Number: 1504
Registered: 11-2006

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Sunday, June 29, 2008 - 11:37 am:

WEEKLY MARKET WRAP

On our Friday night the S&P500 closed down 0.37% at 1278.38 forming a candle with a relatively small body and reasonably large upper and lower tails and on very strong volume. This indicates that the bulls are starting to find more strength than previously in this down leg and we could be getting closer to a reversal in the next couple of trading days.

So from a short term perspective we will probably get a bit of bounce in the near term.

From a longer term perspective I go to a longer term chart from late 1998 to the present time. On this chart I only show the price action and the TMF. Note that we are currently in a similar bear channel on the TMF as that which started back in 1999. The TMF in this bear channel managed to get down to around -0.25. Note also that the low in the TMF did not correspond to the low in the market. That bear channel had a high in January 1999 and the low was reached in December 2000 (almost 2 years). Our recent TMF high marking the start of the current TMF bear channel started in October 2006. Using a similar time frame we would probably get a low of around September/October 2008.

For Paddy's benefit the following chart shows the Fibonacci lines on the 10 year chart to show where we are at in terms of retracements. As can be seen we are close to the 38.2% mark with the 50% market around the 1180 point.

ASX200

Our market on Friday showed amazing resilience by recovering much of the morning losses to end up closing at 5237 after being down as low as 5144.7 at one stage. It can be seen from the last three candles that 5237 is a pretty good support level and we are likely to bounce from that level on Monday. At this stage the January 2008 low at 5186 remains strong support.

Financials excl. LPTs - (XXJ)

This important index made a splendid recovery from significant lows on Friday (like the XJO) to end up above the March lows support line shown in green. It looks like it is readying itself for an attack on the descending trend line shown in red.

Materials Index - (XMJ)

On Friday this index respected the lower boundary of the short term bull channel much to my delight and relief. Hopefully we will get a bounce of the lower bull channel on Monday to give us a bit of a relief rally.

azworkinit

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Post Number: 51
Registered: 02-2008

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Monday, June 30, 2008 - 05:30 pm:

Hello Rudy,I thought I'd drop a mail and let you know that the main pit at MGX has reached the orebody and looks to be pumping up production this year.On the other hand another local IO Jr that I once held has been hammered on the market, and I decided to get back in whilst other unfortunates sold for tax purposes.MMX has some probs with wayne swan putting a stop to SINO accumulating more,though their production should be up next year as well.Also they're still in the running with Mitsubishi to build the Oakajee port so are pretty good value at sub $3 today.Anyhow have my hooks in the next shotfirers job at MGX, so should be able to talk the talk on your home contact in the future.Regards,Az.

"Success is a lousy teacher.It seduces people into thinking they cannot lose."BILL GATES.

ody

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Post Number: 2564
Registered: 10-2006

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Monday, June 30, 2008 - 05:41 pm:

azworkinit,

MGX

Several posters here own Mount Gibson (myself included) so will be keen to know why I went down quite sharply today, though the news that the company supplied seemed positive. Since you are obviously very hands-on indeed, any information as to why the stock's performance disappointed so much will be useful to all those invested in it! By all means post it soon, please. Rudy usually does not keep working on at his computer at this time, so I think he won't see your message until the morning, though I am sure he will appreciate it as much as any correspondent interested in your posts.

I imagine that MGX may also have been sold down for tax purposes, come to think of it, for there would be a number of owners who could that way crystallise and impressive loss. Perhaps that is the reason? I suppose what I am most interested in myself is whether there is ANOTHER reason, to do with any shortcoming on the part of the company itself.

(Message edited by ody on June 30, 2008)

ody

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Post Number: 2565
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Monday, June 30, 2008 - 06:16 pm:

Why did the market go down?

And that after so spectacularly positive a start! I can think of at least two reasons:

(1) Bad news about inflation. It was notable that the banks were particularly badly hit, as always happens when inflations rears its head - for one thing because that may lead to an increase in interest rates. Probably the Reserve Bank will "hold" tomorrow, but not all investors will feel confident about that, and in particular are likely to fear that the Bank may hold BUT provide hawkish warnings - and indeed, actually WILL raise rates if inflation continues to grow.

Everyone here can think of reasons why inflation is on the rise. TD Securities-Melbourne Institute's inflation gauge measured June inflation as 0.5%, quite a bit higher than May's 0.3%. That 0.5% is frighteningly high on an annual basis, and the more worrying because it occurred while oil prices and interest rates were high. Of course, these are also a factor in CAUSING inflation, but the hope was that consumers had come to buy less, and that inflation thus would not continue to go upward. The Institute commented that just possibly "the early stages of deceleration in inflation are coming through", but one guesses that not many people are necessarily convinced of this. In any case, the inflation news was one likely negative influence on the market.

(2) Tax-loss selling may well have been another. Although there are indications that a lot of this had already occurred there are always people who leave this until the end, and particularly if they are not happy with the market anyway. If this had been a bull market, the last day might have been used by fund managers for positive "window dressing". That most certainly did not happen. Selling was clearly a priority, and it is even possible that that was in part spurred by the bad news on inflation.
---------------
The RB will announce its decision on interest rates tomorrow, and then, as well, a new year is starting, which totally removes the need for tax loss selling, so it will be very interesting to see what will happen.

I must confess that I had expected a better result today, and find the negative move of today's market rather ominous, unless the next few days will reverse that.

A good point was that resources often did well, though they too were not unaffected by the general decline.

Another negative piece of news today was that private credit growth remained poor. Indeed, annual changes in housing credit were at their lowest level since the early 1990s recession, and in personal credit they were at their weakest for five years. None of this is at all positive for share markets. Banks, in particular, are affected by such factors.

Total losses for the ASX for the FINANCIAL year (June-June) amounted to 17% (a very high figure for the year as a whole), and the index is now 23.6 % down from its November all time high of 6828. It is generally agreed that once the market is down by 20%, particularly if that is an ongoing or repeated event (and we have both), then that market is clearly to be seen as a bear market. And indeed, given the abundance of bad news, with in particular credit woes, failing or faltering companies, reduced economic growth which contrasts markedly with damaging inflation caused by highly priced oil and other rising costs, the whole situation in essence is continuing to be that of a bear market. A rally ex-US does remain a possibility, and some European markets right now would suggest as much. But, here in Oz, today's news was not helpful. Anyway, tomorrow and the day after should give us more of an indication.

azworkinit

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Post Number: 52
Registered: 02-2008

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Monday, June 30, 2008 - 06:38 pm:

Hello Ody,thankyou for your reply.I will try to see if there is any other reason than the tax writedown.I don't believe so,as all talk was about "hitting the money",to quote,in the main pit.I noticed the results from Cockatoo contained mention of sulfur and some water.This can cause some headaches in extraction,and particularly blasting.I would imagine some good announcements coming regarding the start of mining, scheduled before end of year at extension hill, will be good value.Apparently a scheduled shutdown in july is pending for Tallerang Peak.This is no big deal. I also noticed GBG bucked the midwest IO trend today and bought some more of them.The rally at the end of the day was heartening.Maybe if politics and company hooha would leave Murchison and Midwest alone they would be heading upwards as well.Regards Az.

"Success is a lousy teacher.It seduces people into thinking they cannot lose."BILL GATES.

azworkinit

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Post Number: 53
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Monday, June 30, 2008 - 06:43 pm:

Ody, my mistake,I mean't Koolan island.Regards Az.

"Success is a lousy teacher.It seduces people into thinking they cannot lose."BILL GATES.

ody

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Post Number: 2566
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Monday, June 30, 2008 - 06:47 pm:

NEGATIVE WINDOW DRESSING??

I have just read this in a Business Spectator post by Alan Kohler (right at the the end). Conceivably the odd decline on today's market, too, is due in part to this phenomenon (it would not be the only cause):

-----------------------------------------

An interesting sidelight is that we seem to have seen the advent of “negative window dressing” – that is, where fund managers sells stocks to get the price down before year end, instead of up as they normally do.

The ASX sent out a warning last week to brokers about year-end window dressing, but this post in The Conversation this morning highlights what one broker did at 4.10 pm on Friday – sold a whole basket of small cap stocks and smashed the Small Ords index by more than 3 per cent in a few minutes.

John Abernethy of Clime, who wrote the post and whose unit price suffered as a result of what happened, is demanding an explanation from the ASX. (AK)

----------------------------------------------
Comment (by me):
The MOTIVATION for negative window dressing is that if a fund manager knows that he (it's rarely a she - that is one reason why they perform so badly) KNOWS that the end of year result is going to be poor anyway, it becomes attractive to drive the price FURTHER DOWN, so that it can from there on be manipulated back up. What you then tell your clients is that the negative result at the end of the year was not YOUR doing (how could anyone think THAT?), but entirely due to a negative market. If next time your result is positive (which you can assist by pushing prices UP on e.g. 31 December), then you claim that the positive results are wholly YOUR doing, and show your fantastic skill in turning your own earlier (30 June) results around.

Likely enough there would have been SEVERAL fund managers thinking along these lines. None of this is of course incompatible with any other negative factors that would also have steered the market down.

ody

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Post Number: 2567
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Monday, June 30, 2008 - 06:53 pm:

Many thanks indeed, azworkinit, for your informative posting!

ody

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Tuesday, July 01, 2008 - 03:19 am:

MAJOR CRASH FORESEEN BY THE BANK OF INTERNATIONAL SETTLEMENTS

This highly authoritative body, an umbrella organisation that analyses comprehensively the work of central bankers on a global scale, judges their efforts very critically and severly. It thinks a truly major crash - FAR bigger than what has been foreseen - is now likely.

Go to: http://www.businessday.com.au/

and look for "BIS warns of deflation and major crisis". It is not hard to find, a chilling piece, but "obligatory reading". I haven't seen anything like this yet. It well and truly warns - coolly - of an enormous catastrophe.

This is the "Central Bankers's Bank", with an overarching view and masses of information and skilled people at its disposal. It was one of the very first to predict correctly the subprime crisis at a time when (a) it had hardly been noticed, and (b) was virtually disregarded as trivial to the extent that it HAD been noticed. So its views cannot readily and safely be dismissed.

If this view is correct it would (a) be very wise not to buy and shares at all, and possibly to sell those you have, and (b) to ensure that your cash is preserved in the safest possible way. Some gold etc. would probably not come amiss either. One would need to count on a VERY major and severe crisis, which will take some years to work through the financial system with devastatingly destructive force.

rdumas

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Post Number: 1505
Registered: 11-2006

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Tuesday, July 01, 2008 - 08:11 am:

Hi Azworkinit,

As Ody mentioned in his response to your post on MGX I do turn my computer off at around 5pm each night as I tend to spend too much time on it during the day. Consequently I have only now just seen your post on MGX.

I was quite surprised (but not concerned) at the action of MGX yesterday dropping around 4.9% from the previous day's close. I naturally looked up its most recent announcement which appeared to be very positive as you indicated in your post.

Any ideas on what caused the slump would be appreciated.

rdumas

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Post Number: 1506
Registered: 11-2006

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Tuesday, July 01, 2008 - 08:56 am:

Hi Ody,

I thought that someone must have exploded a neutron bomb yesterday when I saw the lack of posting on IC yesterday. I heard that neutron bombs just kill the people and leave the infrastructure in tact or am I getting my sci-fi concepts confused.

Your article on the BIS certainly is concerning however I have noticed during all market conditions that we always have very well credentialled organisations and individuals proposing totally opposite views of any economic situation so in the end we are always left with the unenviable task of making up our own minds about where to invest and when. The problem for us of course is that every analyst and organisation that I have ever known gets it right often but also frequently gets it wrong.

One thing that the internet makes very easy for us is getting access to just about every viewpoint that is known to mankind. Very strongly held views on why Israel will attack Iran, Iran flooding the world with cheap oil to bring down the US dollar, the worst economic disaster to hit mankind is just about to hit us, etc, etc, etc. Every one of the strongly held views has logically and well argued reasons for why the view held is correct. The only thing is if we believe every one of them we would build ourselves a self contained bunker in some remote region of the world and totally isolate ourselves from humanity and social and economic systems and wait for the inevitable fall of mankind.

Whilst BIS may be right in its forecasts of economic gloom and doom I still see about a third of humanity that is discovering what living the next level up in Maslow's hierarchy of needs is like (http://en.wikipedia.org/wiki/Maslow's_hierarchy_of_needs). They have got a taste of it and want more of it. In order to get it they need minerals that we have in abundance. They have their own countries infrastructure needs that even excluding exports is absolutely huge. It is human nature that once you have been exposed to a better life that you want more of it and that driving force in humans is unstoppable. Our miners and related businesses will through sheer greed make every attempt to meet those needs. We by good luck rather than good management happen to live in a country that has stuff (resources) that these developing countries need and that will bring us significant economic benefits.

The US and UK and many other industrialised countries will suffer and their suffering will have an impact on our fortunes I have no doubt but will they bring our economy to a stand still ........... I don't think so.

My nuclear option (worst case scenario) for the ASX200 remains a drop down to somewhere around 4760 as mentioned in past posts. That said I am more than mindful of the fact that I, like others do get things wrong.

cat_lady

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Post Number: 463
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Tuesday, July 01, 2008 - 09:57 am:

Rudy

best definition of economists I ever read was that they are very useful for explaining why things have happened (past tense)...

here's hoping that euphoria overcomes reality and we get a really good few months....

My FMG forays have been OK but as to my core portfolio goes...

well one can count the dividends....

cat lady

cat lady

Without my morning coffee I might as well be a dog

kate

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Tuesday, July 01, 2008 - 11:00 am:

Rudy

Here is a link to the BIS annual report. I find that financial journalists often quote the very