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Charts, Chanos & China – ASX charts & short term outlook

July 3rd, 2013 · Greg Atkinson · 18 Comments

As per the script, finance journalists were engaged in a fierce battle for readers yesterday with most getting very excited about the ASX All Ordinaries and S&P/ASX 200  posting gains of over 2.5%. It was the best day for the market since whenever they exclaimed and the bearish articles they had churned out just a week before were all forgotten.

Meanwhile on planet earth, the Australian stock market is essentially still bouncing sideways as it has done for years. The market has not even gotten close to reaching the pre-GFC high of over 6500 – although it did rally strongly from mid 2012 after being oversold.

Certainly the Australian stock market has moved around quite a bit over the last few months with most of this movement being within a range of 5% either side of the 5000 level.

Australian S&P/ASX 200 Index – 6 month candlestick chart

asx200_6_month_candlestick_chart_jul_2013

On this chart we can see how the rally that started back in 2012, kicked up again early in 2013 before reaching just over 5100 and falling back again. The market then bounced around for a while before starting another run up – peaking at just over 5200 before slumping back to just below 4700. (a correction)

Now it appears we are in another one of those phases where stocks will bounce around direction-less for a while before the next move up or down.  That sort of movement may get the headline writers excited, but for me it’s simply the same pattern we have seen before as I mentioned in February in The ASX All Ordinaries March Towards 5000 – Been There, Done That.

I can’t say if the next move will be up or down, but I do feel fairly confident that whatever happens the ASX 200 (XJO) will settle back into the 4800-5200 range or thereabouts.

The chart above is focused on just six months and for some it may seem that the market action has been pretty dynamic, but if we look at a candlestick chart for the XJO over the last 10 years it will put this years movement into some perspective.

Australian S&P/ASX 200 Index – 10 year candlestick chart

asx200_10_year_candlestick_chart_jul_2013

Here we can see that the market movement for this year is not particularly unusual in terms of what percentage the market has bounced around. In past years there have also been moves up/down of 5-10% and as I have stressed many times before…corrections happen fairly often.

The unusual situation we have at the moment is that the Australian stock market has been treading water for years and it’s hard to see how that will change until the mining stocks get back their mojo.

Speaking of mining stocks, let’s have a look at two of the biggest – BHP Billiton and Rio Tinto.

BHP Billiton & Rio Tinto – 6 month stock movement chart

bhp_rio_6_month_stock_chart_jul_2013

My perhaps simplistic view is that BHP & RIO stocks are feeling for a bottom and are probably both near being fairly good value.

Yes the Chinese economy is slowing (as I warned would happen) and commodities prices have fallen (again as I predicted) but both these factors are probably close to being fully priced into these stocks.

Speaking of China, now even the uber-China bulls are grudgingly admitting that growth there is slowing but the new buzzword is “re-balancing”.  Once again it seems that some believe that command economies posses magical abilities and that the slowdown in China is actually part of a grand plan to shift from being export dependant to being more balanced.

What I see is happening is Chinese authorities re-acting to a whole range of problems they need to deal with including: a slowdown in foreign direct investment, higher wages/input costs, a real estate bubble and a shadow banking crisis.

How the Chinese economy fares will have a major impact on the Australian economy and the stock market so I suggest readers take the time to watch the video clip below featuring James Chanos, president of Kynikos Associates LP, and Stephen Roach, chairman of Morgan Stanley Asia.

Personally I think Jim Chanos makes the most sense, but I am a China bear so that’s hardly an unbiased comment.

In any case the clip is worth watching as investors will get more insights in just a few minutes by listening to Chanos & Roach than they will ever get from most of the mainstream finance media in Australia.

Greg Atkinson is the editor of Shareswatch Australia and Managing Director of Ohori Capital.  He currently works & resides in Japan. He can be followed on twitter via Follow @GregAtkinson_jp
Greg Atkinson is the editor of Shareswatch Australia and Managing Director of Ohori Capital.  He currently works & resides in Japan. He can be followed on twitter via Follow @GregAtkinson_jp – See more at: http://www.shareswatch.com.au/blog/stockmarket/a-stock-market-correction-so-what/#sthash.pAvLnyGr.dpuf


18 responses so far ↓

  • 1 Stillgotshoeson // Jul 3, 2013 at 3:00 pm

    “The unusual situation we have at the moment is that the Australian stock market has been treading water for years and it’s hard to see how that will change until the mining stocks get back their mojo. ”

    Or the banks are considered overbought in an upset of the finance industry/credit markets causing the market to break the bouncing market to the downward side…

  • 2 Greg Atkinson // Jul 3, 2013 at 4:11 pm

    Yes that’s a good point. If the financials started to trend lower while the mining stocks were weak or even also heading lower then the All Ords/ASX 200 would certainly head lower.

    Still I think 4400 is a pretty solid support level with the next one being around 4000 which hasn’t be breached for long since the dark days of the GFC.

  • 3 Biker // Jul 3, 2013 at 4:50 pm

    Probably a mistake to hold your breath on that one:

    http://finance.ninemsn.com.au/newscolumnists/greg/8684348/australian-banks-not-so-overstretched

  • 4 Richard // Jul 4, 2013 at 9:14 am

    On the one hand, US economy seems to be slowly recovering while China is contracting. And who knows about the Australian domestic economy.
    So the ASX sharemarket is being pushed and pulled by different factors.

    Is it possible to quantify the approx weighting of the overseas markets on our Australian economy. That would help us estimate whay may happen to ASX S&P200.

    If we knew ASX S&P200 is impacted by Domestic issues 40%, USA 30%, China 20%, Rest of World 10%, it would help put things in context when there are overseas shocks.

    I made up those percentages, but would love to know what others think the real percentages are.

  • 5 Biker // Jul 4, 2013 at 12:45 pm

    Perhaps recent BDI figures help put The Big Picture in perspective?

  • 6 Greg Atkinson // Jul 6, 2013 at 7:16 am

    Richard I don’t have any good numbers to give you but I will make an estimate based on how I feel the market is moved.

    The ASX 200 range of stocks includes large financials and resource mining/stocks so I would say it is moved by:

    40% Domestic Issues/Domestic Economy
    60% International Issues/Global Economy

    It’s hard to break up the global economy into regions of influence since it’s so inter-connected. Some days the markets appear to be moved by what is happening in China on others, our stock market seems to follow the lead from Wall Street. Then just to keep us on our toes a relatively small economy like Portugal shakes everything up!

    Biker – regarding the BDI, well that’s still very weak despite having another small rally recently. What that indicator continues to suggest to me is that growth in global trade volumes is still weak.

  • 7 Richard // Jul 6, 2013 at 11:41 am

    Thanks for that Greg.
    It is tricky at the moment with US seemingly picking up while China is slowing down, as you say, and the odd Euro trouble to also consider.

  • 8 Biker // Jul 6, 2013 at 3:59 pm

    Some interesting forecasts here:

    http://www.watoday.com.au/business/australia-tipped-to-muddle-through-20130705-2phhh.html

    And another viewpoint:

    http://www.perthnow.com.au/news/western-australia/mining-billionaire-andrew-forrest-believes-china-is-going-strong/story-fnhocxo3-1226675286500

    (Edited by Admin)

  • 9 Lachlan // Jul 7, 2013 at 1:19 pm

    Woh,Twigs tie! Is yet another conspiracy surfacing? Look at Glens tie.

    http://www.youtube.com/watch?v=Xd4YKNt00ec

  • 10 Biker // Jul 7, 2013 at 1:33 pm

    Great tie-spotting, Lachlan.

    I figure it’s a deliberate, subliminal message.*

    * You’d never catch Keen wearing a gold tie… 😀

  • 11 Lachlan // Jul 7, 2013 at 2:10 pm

    I’m on to them BP.

    As for China, I don’t know for sure why 300M people are moving to the city but there’s a lot of new credit there. It seems to be a freight train in mid journey.

  • 12 Greg Atkinson // Jul 7, 2013 at 2:19 pm

    Lachlan I suggest you watch the video clip and see what Chanos has to say about that 300 million figure.

    Also a year or do ago I mentioned that the shipbuilders in China were in trouble and now that news is hitting the mainstream financial media.

    See: China Rongsheng shares suspended after job loss reports (Reuters)

  • 13 Lachlan // Jul 7, 2013 at 3:39 pm

    Interesting discussion Greg. They should have kept going.

    The technology side is hard to predict. Surely it will keep surprising us. Hard to see where all the employment is going to come from though (in the world generally). At least our population here aren’t pushing the numbers. Life’s too accommodating. We’re too busy having fun in the sun. Average now is 1.87 children/woman. China may be about the same I think. Interestingly the Virgin Islands are even lower……no kidding 😉

    Here we go http://www.indexmundi.com/g/g.aspx?v=25&c=vq&l=en

  • 14 Biker // Jul 7, 2013 at 3:50 pm

    “It seems to be a freight train in mid journey…”

    Small beer when there’s a 100-year plan, but as you say, technological innovation may even make high-speed rail obsolete. We were riding through France when saw our first bullet train. It blew us away. Literally… .

    China may not need to force the next generation to move to the cities. The compulsion may be subtle: higher wages, lifestyle (although that’s arguable), increased opportunity, perhaps even tax advantages. Must get over there soon for a look… .

  • 15 Lachlan // Jul 7, 2013 at 7:10 pm

    I don’t see why China wont go through a consumption phase of some considerable size. Its not like they don’t have a blueprint to follow, the financial alchemists to advise them etc. Look at the US etc. Had everything decades back. After a fifty year party they can’t be too surprised at the hangover. China has got the goodies now. Will they get their party hats out soon?

  • 16 Biker // Jul 7, 2013 at 8:07 pm

    Certainly the transfer to a domestic economy will be an uneasy and incomplete transition, Lachlan.

    While living, studying and later working in Canada, I couldn’t help be impressed by the volume of trade with the US, both ways. Greg probably has figures for that trade, but the US and Canada combined is a population base and ‘domestic’ market half the size of China’s.

    Keen’s predictions for China’s slower growth are interesting, but I honestly can’t recall a single prediction he has made (which isn’t revisionist 😉 )
    which has been correct. Meanwhile, to be fair, Twiggy’s more optimistic view is understandably biased towards his shareholders’ needs… but I still think he’s closer to the mark. Most of the time, he has been right… .

  • 17 Greg Atkinson // Jul 8, 2013 at 9:18 am

    Lachlan..yes the technology side is almost impossible to predict. Some developments run into a brick wall whilst others appear to come out of nowhere – although that is seldom the case.

    Biker high speed rail (i.e the bullet train) started commercial service here in Japan in 1964. Will this technology become obsolete? Well not exactly but the next leap forward is the driver-less Maglev which is currently being tested and will zip along at around 500 km/h.

    As for China, it isn’t just internal issues that will shape their economy as I mentioned above. FDI growth for example is slowing & many companies are looking diversify their production away from China to such places as Vietnam, Myanmar, Thailand and now Cambodia.

    There are also signs that some sectors of the Chinese economy have already peaked and have now entered a period of decline…shipbuilding being a good example.

  • 18 Biker // Jul 8, 2013 at 11:24 am

    Yes, I was aware that Japan pioneered high speed rail, Greg. We never got to see it, but maybe our youngest (in Tokyo at present) may get a chance.

    Hadn’t heard of Maglev, but that’s the kind of advance I suspected might be on the cards…

    And yes, we’ve witnessed the move to south-east Asia, most recently in Vietnam. Who’d have imagined North Face being manufactured in Vietnam?

    I’m aware of your thoughts on the BDI. I suspect that other forms of ‘shipping’ may be taking up some of the slack; but don’t know enough to comment… other than noting that way back in the 80s, my dad was exporting flowers to Singapore by plane. Is technology affecting BDI, I wonder?

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