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ASX All Ordinaries Index Charts & Trends – August 2012

August 19th, 2012 · Greg Atkinson · 36 Comments

Now that the Australian stock market has staged a very modest rally over the last few weeks an assortment of finance writers, brokers & market watchers will begin to speculate if this rally is the start of something big.  Indeed if we focus on the short term the market has done fairly well over the last few weeks, however the longer term trend suggests that the Australian stock market is still stuck in a rut.

Back in November I wrote a post called: Australian stocks aren’t bouncing, they’re limping in which I discussed how the finance media tended  to exaggerate every market rally whereas in reality, the stock market was essentially moving side-ways.

Back then the ASX All Ordinaries Index (or All Ords)  was just below 4100 and since it’s now just below 4400, one might be tempted to think the Australian stock market is on a roll.  But if we start looking at some charts we will be able to see how short term trends can be very misleading.

First let’s have a look at what has happened over the last month.

ASX All Ordinaries Index (XAO) 1 month candlestick chart

asx_all_ords_1_month_technical_chart_aug_12

Since late July the All Ords Index has moved from near 4100 to just under 4400 at the end of trading on August 17th.  But as I have written many times when the market is down near 4000 it looks oversold to me,  so I don’t believe the movement upwards over recent weeks is anything to get excited about.

Some market watchers my leap on this latest short term trend as something important, however my view is that it is simply part of an overall sideways trend that has been ongoing for some years.

If  I really wanted to talk-up the rise in the market over the last few weeks I would use the chart below.

ASX All Ordinaries Index (XAO) 3 month candlestick chart

asx_all_ords_3_month_technical_chart_aug_12

The chart above is the candlestick chart for the ASX All Ords over the last three months and I have marked on it a crude trend-line from the lowest point in July to the latest market close.

It looks impressive and some would say that the Australian stock market is poised to surge higher.  But we have to ask ourselves why would this happen?

Why for example would the Australian share market rally when it’s clear the Chinese economy is still slowing? Why would the stock market rally when the Baltic Dry Index has slumped down near 700.00 USD? Why would the stock market rally when mining companies are starting to reconsider projects & have even started to trim back staff?

In my view the only reason the Australian stock market may keep rising at this stage is because it’s still oversold.

Let’s have a look at a few more charts so I can explain what I mean.

ASX All Ordinaries Index 5 year chart

asx_all_ords_5_year_chart_aug_12

On this 5 year chart of the All Ords it’s clear that recent move upwards is pretty insignificant when viewed over a longer time-frame.  Hence my view that it would be a mistake to place too much emphasis on the short term movement of the market at this stage.

I still expect the All Ords to finish up near 5000 at the end of the year but I doubt the current short term upwards trend will last much longer.

How investors play the market at this point will depend on their trading style. Shorter term traders may look at locking in some profits fairly soon which may send the All Ords back down again into a region where longer term investors will find some stock bargains.  At times I feel the market is essentially being driven by the exit & entry of short term traders and longer term investors.

But the global economic outlook is very unclear and as the saying goes – anything could happen!

If we now look at the 10 year view of the Australian stock market we can see how the last few months fit into the big picture view.

ASX All Ordinaries Index 10 year chart

asx_all_ords_10_year_chart_aug_12

On the chart above I have marked the big three trend over the last ten years. First we have the bull market run from 2003 to the peak in 2007.  Then we had the crash back to earth during 2008 and in early 2009 followed by a sharp bounce back to 5000.

Since the rally back up to 5000 in 2009 the stock market has moved in a range between 5000 (marked in green)  & 4000 (marked in red) with just a few short brief moments when it has ventured outside this range.

The last little creep upwards over the last month is in my view just part of the ongoing drift sideways which I don’t see being broken during 2012.  However the market is trading near the lower part of the 4000-5000 range which suggests it may still be a touch oversold.

But in the current environment it’s more likely the market will drift towards being oversold than overbought so I think we need to wait a bit longer before trying to convince ourselves that any significant upwards trend is taking hold.

This article was written by Greg Atkinson who is the editor of Shareswatch Australia and the Managing Director of Ohori Capital. He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp


36 responses so far ↓

  • 1 Greg Atkinson // Aug 24, 2012 at 4:59 pm

    Looks like some profit takers moved in today. Perhaps we will see the All Ords head down and test the 4000 support level again during the next week or so?

  • 2 BP // Aug 24, 2012 at 5:34 pm

    Mike Smith’s Big Sell won’t inspire much confidence, regardless of his _stated_ reasons for doing so… .

  • 3 Plornt // Aug 24, 2012 at 5:50 pm

    Maybe Greg, but if we retest 4,000 again it will make it the 4th time we retest major support which usually doesn’t hold.
    IF we break the August 2011 psychological support intraday low of 3829 I can see a wave of panic selling ensuing for fear of retesting the 2009 lows.

    See what happens over time, and I could be wrong, and will be wrong at times. If the DJIA enters a bear market it doesn’t bode well for the XAO as there has been a positive correlation in the past several years when the DJIA has had a severe correction. Until I see something different I can only assume that will continue to be the case.
    The bulls will be hoping the DJIA is going to break to new highs to help the XAO march higher. I think there is overwhelming evidence the DJIA is near exhaustion at least technically. PE expansion may occur assuming forward pe’s are correct, but this is not matching up with price action. I’ll take price everytime.

    XAO is on the 2nd retest of the 35dma, so XAO may have some lower high bounces off 35dma support, or even break to new highs before resuming a possible crash below August lows.

    All my drivel is not meant to act as any form of financial or investment advice. All site visitors are urged to do their own research and/or seek assistance from a reputable investment adviser before making any investment related decisions.

  • 4 Stillgotshoeson // Aug 24, 2012 at 6:16 pm

    QEIII may give a boost to the DOW, however with commodity prices coming of the boil, mainstream news of things no longer looking so good in China, Japan I do not think so. I think the funny money will be going elsewhere this time around.

    Martin Ferguson made the NY times with his comments on the mining boom

  • 5 Lachlan // Aug 25, 2012 at 10:05 am

    I think the dollar index is more likely to make a move toward 80 here than not. After that I wouldn’t want to guess.

  • 6 Lachlan // Aug 25, 2012 at 10:11 am

    Hoping I can see a bottom in gold miners next week. RSI is close to confirming on some indexes I use but will wait and see.

  • 7 Plornt // Aug 25, 2012 at 11:35 am

    Lachlan DX can move down — UUP the USD etf has bounced off the 200dma, and it is making higher highs and higher lows, and major channel support at $22.
    Seasonality for AUD.USD is currently negative, and I have 3 short systems on the AUD.USD currently active. Many Macro factors that many reputable individuals have covered make the current AUD.USD levels extremely overvalued relative to the USD.
    Not to mention any further weakening by the RBA in the future will unwind the carry trade.

    Max draw on AUD.USD is 1.062, so I wouldn’t expect it to go higher than 1.075. Trying to time the last 300 pips is dangerous though as it may not even hit max draw.

    Market profile for SPY is confirming we are near trend exhaustion as well which should be a positive for risk off, and the AUD.USD to head lower.

    Lets see what will happen in time. Given your holding period is forever Lachlan a lot of this market action is probably irrelevant for you.

  • 8 Lachlan // Aug 25, 2012 at 8:11 pm

    Probably the only thing about a move to usdx 80 Plornt is that it might mean more volatile action between 80 and 84 for some weeks. That could allow the Dow a chance to creep higher.
    I believe a strong dollar short trade will resume sometime and inflation will surge across many countries. I can see the AUDUSD at new highs too later on. As to where/when that trade resumes from I have no firm idea yet. Could still be much higher like 88 or maybe it has or will be started before anyone can foresee it. Doesn’t help much does it? At least nobody can trade now on these ideas I guess 😉

  • 9 Lachlan // Aug 25, 2012 at 8:14 pm

    If the usdx is destined to keep moving higher a while I do expect correlation with gold and pm shares to commence at some stage.

  • 10 Stillgotshoeson // Aug 25, 2012 at 8:16 pm

    Not sure where I could post this…

    ASX Share Game. So far so good…

    National performance summary
    Your portfolio value was $57,184.48
    Total number of ranked players 7966
    Your ranking was 67
    Average player value $51,682.99
    % of players in profit 85.26%

    VIC performance summary
    Your portfolio value was $57,184.48
    Total number of ranked players 1857
    Your ranking was 11
    Average player value $51,610.54
    % of players in profit 84.98%

  • 11 Business Estate // Aug 26, 2012 at 4:03 pm

    Superb roundup! Would be great to see you mention what was surely the event of the month Coca Cola Announces $60m+ Profit

  • 12 Lachlan // Aug 28, 2012 at 6:34 am

    Gold hesitating now at the trend line (some will call it) formed by
    Sept2011 and Feb2012 highs but i think we will likely go to the pivot point at 1700 soon enough and then we have a good one at 1800.
    AUD USD very near a good pivot support too.

  • 13 Lachlan // Aug 28, 2012 at 7:04 am

    ASX200 might come towards 4300 more before attacking that old range above 4400 which seems completely contrary to the prevailing mood and the trajectory of commodities of late however that is often the mo for markets.

  • 14 Plornt // Aug 28, 2012 at 9:02 am

    “AUD USD very near a good pivot support too.”

    Lets see what the AUD New Home Sales number is to give some short term clarity on the AUD.USD.

  • 15 Plornt // Aug 28, 2012 at 9:13 am

    “AUD USD very near a good pivot support too.”

    Apologies that number is already out; was a rise in July figures standing at 2.8% and 6,021.

    Pivot support is at 1.032. System targets are 95 as a first target. Recent COT data supports your USD continued weakness arguments Lachlan. Just have to see what happens here.

  • 16 Greg Atkinson // Aug 28, 2012 at 10:57 am

    The All Ords looks set to fall back to me. Not even the rumours of economic stimulus in the U.S. or China can keep it moving higher. I also suspect many hard commodities have further to fall and that we have just seen the beginning of mining projects being put on hold or shelved.

  • 17 Plornt // Aug 28, 2012 at 11:51 am

    I am still short AUD.USD and ES. DJIA last candle was higher high and lower low Up candle (Aug 24) with a preceeding red candle (Aug 23) which gives a huge red flag when it occurs with trend exhaustion identified via market profile and 35dma exhaustion. I’ve lost count how many red flags we have now. Clear rejection of 10dma.

    Technical analysis may be simple, but it is clearly showing what the true subsurface trend is right now. There may be one slight move up, but the next 2 months look potentially bearish.

    I think for gold we have to see what the impact is re: moving to risk off, and any associated monies moving to precious metals out of equities intitially seeking a perceived safe haven (as occured in 2011 and prior to the GFC). Then perhaps re-short at that stage as precious metals tends to lag the indexes by about 1 month on major bear market crashes.

    All my drivel is not meant to act as any form of financial or investment advice. All site visitors are urged to do their own research and/or seek assistance from a reputable investment adviser before making any investment related decisions.

  • 18 Plornt // Aug 28, 2012 at 11:56 am

    Gold is definitely in a bear market cyclically though. In the last 20 years the duration for gold from a cyclical bottom – after >20% falls – took nomore than 1 month from the lows to increase >20%. We are now at over 3 months from the May 16 lows, and 8 months from the December 29, 2011 lows, and are currently up ~10%. That is extremely bearish price action.

    All my drivel is not meant to act as any form of financial or investment advice. All site visitors are urged to do their own research and/or seek assistance from a reputable investment adviser before making any investment related decisions.

  • 19 Lachlan // Aug 28, 2012 at 8:02 pm

    Longer term I am bullish on the aud. The audusd should go to new historic highs. It’s possible to retest 80 or so first but we don’t have to. Should be another Fed induced bubble to short sometime. Our markets are probably going to stay muted between 5000 and possibly 3600 over this time imo….maybe with little correlation to reality.
    In regard to QE, I think it never stops. No doubt without QE our markets would be far lower as a thorough deleveraging would occur. But since it powers our currency higher we also have a cap on upside until that paradigm is over..imo.
    Please don’t trade my dribbling either

  • 20 Lachlan // Aug 28, 2012 at 8:08 pm

    Better pivot around 1.02 maybe Plornt…maybe you could make some dough down to there if we keep on sinking?

  • 21 Greg Atkinson // Aug 29, 2012 at 11:02 am

    Looks like the All Ords is back to being pretty direction-less again with a possible drift downwards developing. Sometimes watching the market is about as interesting as watching paint dry 🙂

  • 22 Plornt // Aug 30, 2012 at 12:36 pm

    ASX 20 4 /16 — 27m/37m Advance / Decline.
    XAO down ~45. People moving to safety.

    Japan is overdue a 17 year switch from bear to bull secular cycle. Can’t believe the Japanese market is still basing.
    “TOKYO, Aug 30 (Reuters) — Japanese fund managers lifted their bond
    allocation to a record high while cutting that on stocks to a 14-year low in
    August, as they fret over the slowdown in the global economy on top of concerns
    about Europe, a Reuters poll showed.”

  • 23 Plornt // Sep 1, 2012 at 10:35 am

    Well Gold went up 30.5 to 1687.
    Massive rush to gold stocks overnight up 4.39%.
    Worst performer Healthcare @ -1.7%.
    Looks like history is repeating and risk off is moving money from defensive sectors towards precious metals.

    Silver system is showing max DD short of 39$. Gold is now above max draw, so we are looking for a move just below the 20% level at worst, and an expected move to 1700 in terms of shorts. If ~1827 breaches then there would be a confirmed bull market. GLD short interest currently 13,282,922.

    There is a fractal support level at ~1590, but it is not of the long term trend type, so we are looking for the secondary fractal trigger to end the trend.

    Australian Retail sales MOM:
    Prior 1.0%
    Consensus 0.2%

    Shareswatch posts are not meant to act as any form of financial or investment advice. All site visitors are urged to do their own research and/or seek assistance from a reputable investment adviser before making any investment related decisions.

  • 24 BP // Sep 1, 2012 at 10:45 am

    Plornt: “Well Gold went up 30.5 to 1687.
    Massive rush to gold stocks overnight up 4.39%.
    Worst performer Healthcare @ -1.7%.
    Looks like history is repeating and risk off is moving money from defensive sectors towards precious metals.”

    Jackson Hole response, perhaps? Did Censky call it wrong?

    http://money.cnn.com/2012/08/22/news/economy/bernanke-jackson-hole/index.html

  • 25 Plornt // Sep 3, 2012 at 10:57 am

    “Australian Retail sales MOM:
    Prior 1.0%
    Consensus 0.2%

    Sales fell 0.8 per cent from June, when they gained an upwardly revised 1.2 per cent, the ABS said. Market economists had forecast a gain of 0.2 per cent. The drop was the biggest since October 2010.”.

    Well below consensus. AUD.USD @ 1.0245.

    “SHANGHAI, Sept 3 (Reuters) – London copper edged up on Monday after China’s official purchasing managers’ index (PMI) for the services sector strengthened in August, though persistent worries about the pace of growth in the world’s second largest economy capped gains.

    All eyes are on a slew of data over the rest of the week for further trading cues, starting with HSBC’s final report on China’s manufacturing activity at 0230 GMT on Monday.

    Investors will also scour a report on U.S. jobs growth on Sept. 7, which many feel will determine whether the United States will launch another stimulus programme soon, after Federal Reserve chairman Ben Bernanke expressed concern on

    employment levels in the country.”

  • 26 Plornt // Sep 3, 2012 at 12:14 pm

    “It’s the weakest group of releases I have seen since 2009. Everything is bad … It definitely raises the risk (for the RBA) to cut rates this year, maybe November or December. But right now, they are more likely to be on hold.”

    “The weaker company data for Q2 suggests there are downside risks to the 1 per cent GDP forecast that the market has been forecasting. Looking at this data, you would think the economy is losing momentum.”

    MATTHEW JOHNSON, INTEREST RATE STRATEGIST, UBS

  • 27 Greg Atkinson // Sep 3, 2012 at 1:00 pm

    About the only thing keeping the market above 4000 in my view is that it’s a touch oversold. There is a lot of bad news out there but some listed companies are still bringing in decent profits but in a market like this, it doesn’t seem to matter.

    On the flip side some former blue-chip companies have got themselves into such a tangle that it’s hard to see them ever getting back their mojo – Qantas being a good example.

  • 28 Plornt // Sep 3, 2012 at 2:04 pm

    Greg the XAO is a touch oversold. I would have prefered to see a fractal trigger create resistance above ~4430. Intraday we have another higher high and lower low up candle occuring against a preceeding red candle, but this may not be at trend exhaustion, as we are only at the 3rd retest of the 35dma. If this candle pattern closes out then I would expect a complete crash from here, or alternatively one last short covering rally, and then a push through 3829.

    DX and SPX seasonality is bearish into 2nd half of September.

  • 29 Lachlan // Sep 3, 2012 at 5:35 pm

    “or alternatively one last short covering rally, and then a push through 3829.”

    Greg I still favour a more upside above 4400 before 4000. A trip to 4200 may come first. I agree the fundamentals do not point to it going higher. A lot of people have lost jobs recently.

    I had a 5.2% up day on my gold shares today Plornt… they have plenty ground to make up, granted. FML and MSR did well. There is no confirmed bottom in on the goldies yet imo but the signs are increasing. In practice I would have accumulated more shares around a support such as the NCM equals $20 mark but I could not spend due to other priorities I made. If this current effort to reverse fails I may get in the market again.

  • 30 Lachlan // Sep 3, 2012 at 5:41 pm

    Looks like your AUD trade is doing well tonight Plornt. Hope you do well mate. What’s you take on next support?

  • 31 Plornt // Sep 3, 2012 at 6:55 pm

    Lachlan supports on AUD.USD are 1.00, and .995. System targets at .95. Max draw 1.062.
    Australia’s economic data coming out is horrible. Lachlan check out Greg’s tweet of the rail cargo volume coming out of China; that looks like it has a long way to go before finding a bottom; usually technical congestion near major support increases the likelihood of support being breached, and becoming resistance.

    Lachlan great that you are doing well on gold equities — it does look very promising re a bottom has been found, and you should benefit from people moving to risk off even if the indicies top out here, but I would keep an eye on it as we know historically gold stocks may eventually move lower after DJIA / XAO hit major secular / cyclical resistance.

  • 32 Lachlan // Sep 4, 2012 at 4:16 am

    Sounds good Plornt. May your equity grow! Catch you in a few days.

  • 33 Greg Atkinson // Sep 4, 2012 at 8:19 am

    I just read a short articles in the Nikkei saying iron ore prices are set to fall another 14% due to a slowdown in demand in China, India & Europe. Since the All Ords/ASX 200 basically rise and fall on the back of banks & miners this doesn’t make me feel too confident over the short term at least.

    Perhaps the only thing that will save my stock market forecast for this year will be an election!

  • 34 Plornt // Sep 4, 2012 at 11:12 am

    “At the current iron ore price of $US89.10 a tonne, Fortescue is estimated by analysts to be only breaking even on a bottom line level. That has raised concerns over its ability to repay its $US10.8 billion of debt, starting with a recently agreed $US1.5 billion facility due in December 2013.”

    I’m not sure how FMG can survive with so much debt if Iron Prices continue to fall, and remain depressed ?
    6 Volatility @ 44.2. FMG 2013 put options look expensive.

  • 35 Plornt // Sep 4, 2012 at 11:27 am

    Here is a contrarian indicator:

    “JULIA Gillard has declared that the death of the resources boom has been exaggerated, telling a mining conference today that China’s growth would fuel the industry’s expansion for decades to come.”

    This one will enlighten and please Greg:
    “JULIA Gillard says there should be no question over the government’s ability to pay for the Gonski reforms while still delivering a budget surplus because of the strength of Australia’s ?world-leading? economy.”

  • 36 Greg Atkinson // Sep 4, 2012 at 11:38 am

    From the Nikkei today – not sure they checked with Julia though 🙂

    “China has curtailed procurement of iron ore from Australia because its economic slowdown has resulted in a surplus of steel construction materials and other steel products. In addition, demand has shrunk in such steel-producing markets as India and Europe.

    China’s iron ore imports declined 0.8% from the prior month in July, falling for a second straight month. With stockpiles of iron ore growing in China, there were cases where bulk carriers from Australia could not enter Chinese ports and had to wait at sea.”

    But it’s good to hear that Julia is now able to see decades into the future..she really is amazing. (in her own mind anyway)

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