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Charts review: ASX 200, All Ords, BHP, CBA plus AMEX Gold & Silver

May 24th, 2011 · Greg Atkinson · 29 Comments

An overdue stock market correction is currently working it’s way across global markets and as usual spooked investors have been selling out of the financials and mining stocks in Australia.  Once again this illustrates just how feeble the ASX All Ords and ASX 200 are and how dangerously unbalanced the Australian economy is.  But is the current correction anything out of the ordinary?

Despite some over-hyped claims made by mainstream financial reporters and many investment related newsletters the current correction is simply just another shift within a trading range that has existed for around two years.

I know that is not exactly exciting news and it won’t sell many newspapers, but if we look at a chart of the S&P/ASX 200 over the last three years you will see that in the overall scheme of things, the current correction is nothing extraordinary.

S&P/ASX 200 Index – 3 year chart

asx-200-2-year-chart-may-2011

Since late 2009 the ASX 200 has traded basically within a range of around 4400-4800 with the very occasional rally near 5000 and the odd slump below 44oo.

It’s pretty clear that investors are pretty keen to sell if they sense much market risk and are also relatively keen to buy back in when they feel stocks have been oversold.

Now to have a look at how much investor fear is out there let’s have a look at the AMEX Gold & Silver Index vs the ASX 200 in the chart below.

S&P/ASX 200 versus the AMEX Gold & Silver Index

asx-200-vs-amex-gold-silver-5-years-may-2011

Without getting into too much detail we can see how the AMEX Gold and Silver Index (XAU) rallied strongly after the market bottomed out in early 2009 and has since outperformed the ASX 200.

When I look at this chart I simply think of the XAU (in red) as being an indicator of  investor fear, so that the moment it looks like fear is the prevaling emotion and has been for quite a few years.

Now let’s have a look at the ASX All Ordinaries along with the stock charts for BHP Billiton and the Commonwealth Bank.

ASX All Ords Index versus BHP & CBA – 5 years chart

xao-bhp-cba-5-year-chart-may-2011

It’s pretty clear that the stocks like BHP and CBA are the ones supporting the All Ordinaries Index and if they turn downwards, then the Australian stock market will fall.  In short, don’t expect non-mining or non-banking related stocks to push the Australian stock market higher if the mining and bank stocks come under selling pressure.

Finally let’s have a closer look at what has been happening over the last three months.

S&P/ASX 200 Index 3 month candlestick chart

asx-200-3-month-chart-may-2011

My reading of the chart above is that we should not be that concerned about the current correction at this stage.  As has happened a few times before over the last few years we have seen a rally up near 5000 (and sometimes past 5000) followed by correction back towards 4400.

Remember I am not suggesting anyone buy, hold or sell based on my articles so please do you own research and feel free to jump in and comment on the charts above or what you feel the stock market is doing.


29 responses so far ↓

  • 1 GoWest // May 25, 2011 at 12:48 pm

    Is this also linked to the slowing of the paper money printing press in the US?
    Gerard Minack’s comments about the negative effect of the RBA’s high interest rates on the economy is interesting as well as they are the ones financing swanny’s 50 billion bankcard overdraft. A slow recession where the debt is squeezed out of our super savings by negative real growth caused by high financing costs (plus inflation) seems to be the common plan.

  • 2 Greg Atkinson // May 25, 2011 at 1:38 pm

    GoWest yes I reckon it’s linked to slowing of the printing press as you suggest. To be honest there is so much to watch these days it’s hard to work out what to follow. We have EU debt worries, US debt worries, a possible Chinese real estate bubble, a post-disaster Japanese economy that is struggling and possibly a slowing Australian economy just to name a few. Just to complicate things further, they are all linked together in some way as well.

  • 3 Senator13 // May 25, 2011 at 8:52 pm

    There sure is a lot going on at the moment. And there is not a lot of news to fill one with a lot of confidence.

    I do not see much change in this trading trend for at least the remainder of this year. I might even be so bold as to say I don’t see much changing in the next 12 months either.

    Also I think the international debt worries will be with us for many years to come. I also think that our own debt will start to catch up with us… It is not a popular thing to say because everyone tells us that we are booming! Even though the share market is stagnate, retail figures low, small businesses closing and tax receipts down say otherwise…

    Cash is looking pretty attractive at the moment.

  • 4 Anon // May 25, 2011 at 10:46 pm

    “I do not see much change in this trading trend for at least the remainder of this year. I might even be so bold as to say I don’t see much changing in the next 12 months either.”

    Check the 88-89 and 99 XAO correlations and see the range breakout.
    Usually when markets keep retesting a range over and over, there will be a big break to the upside eventually.
    I’m pretty sure a huge rally is comming in July.
    We don’t have much to go until we bottom, maybe 200-300 points. I suspect a bounce soon, followed by lower lows into the tax loss period of June.
    Statistically its about 12-14% falls, from the intraday recovery highs, based on previous correlations which would put it around 4400.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 5 Greg Atkinson // May 25, 2011 at 11:07 pm

    Senator it could be that the Australian economy goes into recession last and comes out last? House prices are under pressure, retail sales are weak, consumer confidence is low, business confidence shaken and so it’s China or bust now. But the danger is that just a hint of some major slowing of the Chinese economy would send the ASX All Ords down below 4400 quicker than Wayne Swan can break a glass 😉

    Anon, I don’t see any big rallies out there for a while, not with the end of FY coming up. June tends to be a bit of a selling month rather than a buying month but I would be happy to be pleasantly surprised if a rally does come along.

  • 6 Anon // May 25, 2011 at 11:15 pm

    “Anon, I don’t see any big rallies out there for a while, not with the end of FY coming up. June tends to be a bit of a selling month rather than a buying month but I would be happy to be pleasantly surprised if a rally does come along.”

    Well im still 90% cash, so although i’m optimistic, i am waiting for the dreaded month of June and the correct price levels.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 7 Anon // Jun 2, 2011 at 9:48 pm

    “I suspect a bounce soon, followed by lower lows into the tax loss period of June.”

    Looks like we’ve had the bounce and a big move down today. Usually big moves continue in the same direction for awhile, but anything can happen.
    Charts, nothing really looks any different in terms of longterm trend. Paul Tudor has been buying Chinese index calls given volatility is low. Thats a good omen for the XAO given Paul is very good at playing late stage bullmarkets. He tends to get the turns and blowoff tops but misses the meat of a trend.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 8 Greg Atkinson // Jun 2, 2011 at 10:01 pm

    Anon I don’t think June is going to be very kind to stock market investors this year. Looks like the old saying “sell in May and then go away” might be right on the money in 2011 hey?

  • 9 Anon // Jun 2, 2011 at 10:30 pm

    “Anon I don’t think June is going to be very kind to stock market investors this year. Looks like the old saying “sell in May and then go away” might be right on the money in 2011 hey?”

    Yep, its worked again. Still 90% cash and optimistic lol. 6 red candle reversal needs to confirm for another month and unless there is a signal that nullifies the reversal, it will be several months of sideways to down action, at best, making a Late Oct, early Nov bottom. But lets see if a signal triggers before confirmation, giving a July rally and the final leg of the bull market.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 10 Ned S // Jun 3, 2011 at 12:23 am

    Stay out until the DJIA is 12,000 and then see if you are feeling brave maybe??? 🙂

  • 11 Anon // Jun 3, 2011 at 1:32 am

    Ned, I am avoiding the states. I’m looking at longterm when entering these positions and longterm (technically and fundamentally) the DJIA will struggle to provide sufficient returns @ 12,000.
    There is a 66% chance the DJIA will have a down year this year and a 77% chance the XAO will have a positive year.
    I feel the XAO will outperform the DJIA this year, regardless of interest rate differentials. My guess is overseas investors will be lured to park money in australian equities given they have underperformed SPX, with the realisation that commodity currencies have alot further to run (AUD.USD LT support 1.01).

    The question is, will it outperform it in terms of how far both fall or how far both rise.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 12 Anon // Jun 3, 2011 at 1:38 am

    But of course figures/bias change as material things change. Keep nimble and flexible.

  • 13 Ned S // Jun 7, 2011 at 7:01 pm

    Djia futures are up about 43. What we need now is a nice big 350 to 600 point drop one nite to really set the cat loose amongst the pigeons! 😀

  • 14 Plornt // Jun 8, 2011 at 12:01 pm

    Crash is comming. Double top reversal. 4,100-4,200 is where we’ll likely bottom. We need to hold 4000-4040 or a bear market is in.
    Sell any strength.

    Who is swimming naked, we’ll find out soon?

    This drivel is not advice. Seek a licensed financial advisor. Runaway from the incompetent ones. LT investments ideas may change as things change, donot rely on them.

  • 15 Plornt // Jun 8, 2011 at 1:22 pm

    Short SPI (Asx 200)

    Expecting a dead cat bounce here for several days, but this is looking very very ugly.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 16 Greg Atkinson // Jun 8, 2011 at 4:56 pm

    I think we are simply back down to the bottom of the trading range that the market has been stuck in (and I have been talking about) for more than a year. I would guess unless we get some bad news out of China that eventually we will see buyers come in and the All Ords/ASX 200 try yet another run past 5000.

  • 17 Plornt // Jun 8, 2011 at 5:43 pm

    I’ll be a buyer for the LT at 4,100-4,200.
    We need blood on the streets and capitulation. Lots of retail investors seem fully invested and you can sense panic selling may start if a few more days down occur.

    This drivel is not advice. Seek a licensed financial advisor. Runaway from the incompetent ones. LT investments ideas may change as things change, donot rely on them.

  • 18 Ned S // Jun 8, 2011 at 8:00 pm

    “I think we are simply back down to the bottom of the trading range that the market has been stuck in (and I have been talking about) for more than a year. I would guess unless we get some bad news out of China that eventually we will see buyers come in and the All Ords/ASX 200 try yet another run past 5000”

    Be interesting to see if you are correct Greg. Facts are that it’s 3 and a half years now since the bum started to fall out of the world in late 2007. And as a mug my impression is that the stock markets tend to throw a major wobbly of some sort every 5 years or so?

  • 19 Mr Rapper Cliche // Jun 8, 2011 at 8:05 pm

    Blood on the street… when the tide goes out… the dead cats bounce… gold hits $6K an ounce… who’s swimming naked… it’s looking ugly now… oh a crash is comming… you’d better look out…. .

    Gawd help us every one…

  • 20 Greg Atkinson // Jun 8, 2011 at 8:31 pm

    Ned at the moment it’s looking like I am wrong already 😉 Bear markets follow bull markets and this time we have seen the G-20 try and pull things up via economic stimulus packages which simply muddy the waters.

    But as I have rambled on about many times before, throwing borrowed money at problems without much thought just ends up creating a debt problem – although it does provide short term pain relief.

    So now we are the stage where the big spending G-20 “heroes” of a few years ago are now today’s debt “villains”..and everyone is now worried about debt. (again)

    It’s a funny old world.

  • 21 Ned S // Jun 8, 2011 at 8:40 pm

    “It’s a funny old world” – That it is – As I said recently, how we ever managed to go from a ‘global liquidity glut’ around 2005/2006, to what we had in 2008, and what we’ve had since, is WAY beyond me?

    Heck, who exactly gluttonised the glut?!? 🙂

  • 22 Plornt // Jun 8, 2011 at 8:43 pm

    “Ned at the moment it’s looking like I am wrong already”

    You are usually right longterm Greg. Mr Rapper, thanks for the post, i increased my shorts on that, cheers 😉

    This drivel is not advice. Seek a licensed financial advisor. Runaway from the incompetent ones. LT investments ideas may change as things change, donot rely on them.

  • 23 Plornt // Jun 8, 2011 at 8:47 pm

    Well lets see what happens, i’m all in short now. The pattern I am using to short (not heads and shoulders) has a 100% success rate over 30 years. If it busts out, i’ll cover quickly.

    This drivel is not advice. Seek a licensed financial advisor. Runaway from the incompetent ones. LT investments ideas may change as things change, donot rely on them.

  • 24 Biker // Jun 8, 2011 at 8:50 pm

    Greg: “…although it does provide short term pain relief…”

    It also provides a buffer… a breather for politicians during their term(s) of office. Let the next fella fix it… .

    Who would want to be in charge when a global depression hit?
    How likely would one’s political survival be if one’s own country was swept along in it?

    For that reason, underestimating government intervention as a major factor in investment (particularly during global crises)
    is an error. It will be interesting, too, to see how Colin Barnett handles the WA accommodation storm now on our horizon.
    Already the homeless are baying for Troy Buswell’s blood!
    Our media are enjoying it… .

  • 25 Senator13 // Jun 8, 2011 at 9:17 pm

    I am sure Cate Blanchett will fix it all!

  • 26 Ned S // Jun 8, 2011 at 9:55 pm

    Bugger Cate … Get a MAN on the job! Like Arnie!!! (Hmmm – p’haps not? – He did the California thing. And that hasn’t worked out so well to date??? 😀 )

  • 27 Plornt // Jun 8, 2011 at 10:16 pm

    Scratched the shorts for a tiny profit, my timing looks off again. Will keep watching price.

    This drivel is not advice. Seek a licensed financial advisor. Runaway from the incompetent ones. LT investments ideas may change as things change, donot rely on them.

  • 28 Greg Atkinson // Jun 9, 2011 at 7:57 am

    Let me just say once again, keep your eye on the BDI. (Baltic Dry Index) I have talked about the BDI many times and stated it is indicating that the global economy is not booming. Now what’s happening…market experts, investors and analysts are now worried about the outlook for world economic growth. Finally.

    World shipping carries around 90% of the world trade..so if the ships aren’t busy, then it’s pretty clear something is not quite right.

  • 29 Plornt // Jun 9, 2011 at 10:15 am

    Yep the BDI looks terrible. Support levels on XJO are 4477. If we break that (cleanly) on close of Trading day over next few days, it will fall hard.
    Alternatively this area could be a major support level and may hold for the rest of June.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

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