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ASX All Ords, GMI, BHP, NCM ,CBA, WBC & WOW Candlestick Charts.

July 18th, 2012 · Greg Atkinson · 34 Comments

The Australian stock market has been as exciting to watch over the last month as a Julia Gillard speech.  Over a few days stocks grind out modest gains and then when bad news roll in, the gains are basically given up and the market slides back down again. But if we scratch under the surface and look at some candlestick charts these may help us understand what is driving this type of share market trading.

A major reason the Australian stock market is stuck in a rut is because commodities prices remain under pressure which is something I talked about back in October 2011 in Market volatility, debt & the commodities slide.

It’s interesting to see how the mainstream media have now embraced both the commodities prices slide and the economic slowdown in China which are issues I have been writing about now for some years.  Both these events were always going to happen and the fact that some experts & policy makers didn’t realise that illustrates how clueless some of these some people are.

Anyway before I drift further off the topic at hand, let’s have a look at the technical candlestick charts for the ASX All Ordinaries Index over the last month.

ASX All Ordinaries Index (XAO) – 1 month candlestick chart


Clearly over the last month the ASX All Ords has gone nowhere and has simply edged upwards over a few days when there is some apparently good news and then fallen back over a few days when reality sinks in again.  Investors simply don’t know how far global growth will slow this year and if 2013 will be a year of recovery.  It’s a classic case of a direction-less market.

Let’s next look at what a few resources related stocks have been doing.

BHP Billiton (ASX:BHP) – 1 month candlestick chart


Unlike the All Ords which has essentially moved sideways, the BHP Billiton (ASX:BHP) share price has drifted lower over the last month despite the best efforts of the commodities bulls to try and turn an economic slowdown in China into some sort of positive for mining stocks.  No matter how people try and spin it,  slower growth in China is nothing but bad news for the big mining companies  and their share prices will remain under pressure for quite a while yet.

Even the gold miners are not immune from the weakness in the commodities markets as we can see from the chart of Newcrest Mining below.

Newcrest Mining (ASX:NCM) – 1 month candlestick chart


The stock price for Newcrest Mining (NCM) has followed a similar pattern to that of BHP Billiton and has also trended lower over the last month.

We can even see this same pattern in the unit prices of an Exchange Traded Fund (ETF) that includes a global range of resources related stocks as per the chart below.

Global Mining Investments (ASX:GMI) – 1 month candlestick chart


The ASX listed Exchange Traded Fund (ETF) Global Mining Investments (ASX:GMI) is a good chart to look at since this fund includes stocks with exposure globally to a range commodities such as iron ore, gold, silver & copper.

Again we see a similar pattern in this chart to those of BHP & NCM stock price charts which illustrates that there is still weakness across the commodities sector and I don’t see much on the horizon that is going to reverse that any-time soon.

So if the mining stocks are falling, what is keeping the All Ords level? In a word..the banking stocks.

Commonwealth Bank (ASX:CBA) – 1 month candlestick chart


The above stock price chart for the Commonwealth Bank (ASX:CBA) is almost a mirror image of the charts for BHP, NCM & GMI.  Again we can see much the same pattern below for another one of the big four Australian banks – Westpac Banking Corporation (ASX:WBC).

Westpac Banking Corporation (ASX:WBC) – 1 month candlestick chart


The charts of the miners and banks above show the drift of some investor money away from the miners towards the banks as more investors come to the conclusion that the mining boom is over and that it’s time to look again at the fully franked yields that bank stocks offer.

Finally let’s have a look at a classic blue-chip defensive type stock – Woolworths Limited

Woolworths Limited (ASX:WOW) – 1 month candlestick chart


True to form, the stock price of Woolworths (ASX:WOW) has not done much but has managed to creep up around 1% for the month and I suspect this has to do with investors looking for defensive type stocks while the outlook for the Australian & global economy remains uncertain.

My feeling at this point is that we are getting close to the point of maximum pessimism and  despite the gloom and generally bad global economic news, I believe the Australian share market is a touch oversold. Having said that, it isn’t looking oversold enough to tempt me into the market in any significant way just yet.

Greg Atkinson 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

34 responses so far ↓

  • 1 Ned S // Jul 21, 2012 at 10:41 am

    Not on topic as such Greg, but reading the following, I got the feeling it has some sort of larger picture implications for Oz stocks going forward maybe? :

    Re what Oz stocks have done generally of late, I’ve got to admit that if I’d been a buyer six months ago (a year ago even?) my recollection is that I would have bought the miners and shunned the banks:

    Best I just remain an interested observer I’d say …

  • 2 Greg Atkinson // Jul 22, 2012 at 7:10 am

    Ned I have not been a fan of the major miners for a while since I expected commodities prices to slip back once the reality of the economic slowdown in China to sink in. As for the banks, well they have had a good run over the last 12 months and although I don’t think I will be increasing my exposure to them, I won’t be looking to sell out of this sector either.

  • 3 Stillgotshoeson // Jul 22, 2012 at 2:30 pm

    Whilst they may have further to fall RIO and BHP (more so BHP imo) are starting to look attractive again as a long term proposition in the portfolio.

    Picking the absolute bottom is impossible. Even though I am bearish on the market and Australian economy shorter term, long term I am still quite bullish for the Australian economy.

    Have not added BHP to the portfolio on the current low (relative) pricing, however I am watching them with a little more interest than I have had over the last couple years.

    Of the two, I prefer BHP over RIO as a stock to hold.

    Still shunning the banks though. I still think they are around 30% over valued. CBA into the $30’s and the others into the teens would start to look better.

  • 4 Ned S // Jul 23, 2012 at 7:59 am

    It’s all gloom and doom in the papers today chaps:

  • 5 Greg Atkinson // Jul 23, 2012 at 9:25 am

    Ned the fact that the mass media has now shifted from ‘boom’ to ‘gloom” mode gives me some confidence that we are near the point of ultimate pessimism.

    Stillgotshoeson, I am not reading or hearing anything in this part of the world that would tempt me into BHP & RIO shares yet. I expect they both have a few years of downsizing ahead of them which will probably spook investors although it probably shouldn’t. I share your view of the bank stocks – the only thing that keeps me faithful is the dividends they pay.

  • 6 Stillgotshoeson // Jul 23, 2012 at 10:16 am

    The only reason why I am even looking at BHP is their diversification.

    Uranium will still be a big part of the worlds energy needs as well as oil and gas.

    I expect bank dividends to be reduced as the credit crisis continues to worsen. WBC have gone to the market for $500m to boost their capital position. Paying dividends with borrowed money is not sustainable.

  • 7 Lachlan // Jul 23, 2012 at 12:11 pm

    I expect the RBA will cut again. AUD is strong even now and it’s their policy to hit it on the head sometimes plus the commercials are keeping rates up very high compared to anyone else. Could the US afford commercial loans around 7% plus? I also think the RBA is correct to be paranoid about inflation though. We had AUD1560/Oz gold here well before USD gold was stable above US$1000 and we had plenty of price inflation around the place prior to the last twelve months.

  • 8 BP // Jul 23, 2012 at 1:30 pm

    Lachlan: “I expect the RBA will cut again.”

    There are several (other) reasons I believe you’re right, Lachlan:

    * Residential construction falling;

    * Retail slowing in most states;

    * Unemployment rising in several;

    * Commodity prices stalled;

    * Deloitte’s Dire Prophecies… 😉

    My son, a business analyst, tells me there’ll be no RBA cut in August. Our bet doesn’t involve sheep stations, but I _may_ win this one… 😀

  • 9 Greg Atkinson // Jul 23, 2012 at 2:50 pm

    Newcrest Mining trading today under $21 with BHP just keeping its head above $30. Perhaps we will see NCM under $20 and BHP under $30 this week?

  • 10 Ned S // Jul 23, 2012 at 2:57 pm

    We are only 50 bps above the emergency interest rate lows of 2009? And yes, they probably are going down some more yet. Still, I have no doubt Swanny will be up to the job of painting some lipstick on the pig … 🙂

  • 11 Ned S // Jul 23, 2012 at 3:02 pm

    Just a thought but maybe Oz shares don’t look all that attractive to overseas buyers given our exchange rate? (Including its proven volatility.)

  • 12 Lachlan // Jul 23, 2012 at 5:39 pm

    I agree with those points BP. My own perception is that there is more unemployment and poorer retail performance now (local) than in the 08/09 meltdown. A rate cut is stimulus which I imagine the commercials will grant consumers at this stage…unless anyone thinks they won’t?
    Ned just ignoring the nominal value of aussie dollar exchange rates at present people may still buy the shares depending on their expectation for the currency. I see it going to new highs sometime. I am hoping for a much harder pull back first. We’ll have to wait and see.

    Greg I “would like” to see BHP pull up somewhere between here and 27 and NCM around 20. NCM is technically more oversold here than in over a decade although they have done worse. I can’t go shopping right now unfortunately…you know I would.

  • 13 Lachlan // Jul 23, 2012 at 6:10 pm

    Dollar index looking very bullish

  • 14 Greg Atkinson // Jul 23, 2012 at 11:02 pm

    Lachlan we might see NCM under $20 tomorrow and BHP probably under $30. The markets are looking ugly again and it looks like we are stuck in the All Ords/ASX 200 up/down-sideways tango still.

  • 15 Plornt // Jul 28, 2012 at 3:02 pm

    Dollar index looking very bullish

    Agree Lachlan. My intermediate trend systems fired May 9 short on GC. Great reentry point for a low risk. Risking 20$ for ~300+$ potential gain. AUDUSD intermediate trend short fired July 19th. DJIA short fired July 27th (max stat draw = 13250).

    COT Report DX futures
    large speculators
    long 55109 short 7273

    IF the USD goes into a massive bullmarket this is going to be disaster for inversely correlated equities and commodities.

  • 16 Greg Atkinson // Jul 31, 2012 at 9:43 am

    Looks like NCM & BHP are both on the way up again..but for how long? Seems to me that the market is rallying because of the wrong reasons e.g. the possibility of more economic stimulus in the U.S.

  • 17 Stillgotshoeson // Jul 31, 2012 at 12:26 pm

    I can see no other reasons for the market to rally under the current circumstances.

    I bought 500 more NCM last week under $23

    I maintain my “guess” in the outlook 2012 thread of the ASX being in the 3800 to 4200 range at the end of the year and that the only reason it will go higher is stimulus measures that will not maintain the rise.

  • 18 Plornt // Jul 31, 2012 at 2:32 pm

    IMO this is likely the last – or latter part – of the thrust of the development phase in the XAO.
    Then potentially lower low reversal through 3825 to probably 3400 before we reassess price action.
    DJIA looks very close to topping out. DJIA first target is 11900 then we reassess.
    Patterns morph and things change unfortunately.
    VIX was up last night which is ominous.

    The media seem to be flip flopping from bullish to bearish constantly week to week which is understandable given the oscillations but the Macro picture hasnt changed but has worsened in the US.
    The AUD.USD has been making lower highs for ~12 months whilst the DJIA has been making new highs.

  • 19 BP // Jul 31, 2012 at 9:01 pm

    “Patterns morph and things change unfortunately.”

    Is it possible that ‘patterns’ which morph don’t really qualify as patterns, but rather as random coincidences subject to a barrage of widely-varying influences?

    Subject these ‘patterns’ to an evolutionary algorithm and you may find that they select out (die off) quickly. What you discern as ‘patterns’ may be no more valid or lasting than shaking your kaleidoscope.

    I digress. Why not ‘do-a-Shoes’ and make some specific recommendations, based on your system, Plornt? Whatever one may think of our erstwhile online punter, one must admire his intestinal fortitude in laying-it-on-the-line _before_ he claims 100% gains… .

  • 20 Plornt // Jul 31, 2012 at 9:46 pm

    100% gains ? lol I would shudder to think of the drawdown required to get that ! You would probably need to drawdown 30-40% to be able to do that.

    Ive made plenty of calls off my systems Biker (they are not based on TA classic patterns and can be quantified although some are too complex to code into an algorithm). Some are right others not. NCM short at 34$ was one. XAO short in May 2011 was another. I am still learning and probably in the holy grail phase. They say it can take you 6 to 7 years to get good at this and im trading from 2008. Knowing me it will probably take 10.

    Here are some systems that have fired recently that I posted @ 15

    My intermediate trend systems fired May 9 short on GC. Great reentry point for low risk. Risking 20$ for ~300+$ potential gain. AUDUSD intermediate trend short fired July 19th. DJIA short fired July 27th (max stat draw = 13250).

    This post does not constitute investment or trading advice and the class of assets discussed are volatile and risky.

  • 21 Plornt // Jul 31, 2012 at 10:19 pm

    Short AUD.USD 1.0516 – stop 1.10 – target 80
    Short SPX 1385 – stop 1428 – target 1150
    Short USD.CAD 1.003 – stop .994 – target 1.10
    Short GC 1630 – stop 1680 – target 1300.
    Short EWA 23.20 – stop 24.40 – target 14

    We can look back at this in 3 months time. The for the USD pairs + GC there is no actual static target as the trend system will keep you in until the trend ceases. It could go much further or less.

    This post does not constitute investment or trading advice and the class of assets discussed are volatile and risky.

  • 22 Greg Atkinson // Aug 3, 2012 at 4:23 pm

    Quite a shift down again today but it still looks like the overall trend is banks up, miners down.

  • 23 Plornt // Aug 4, 2012 at 12:02 pm

    Yes financials are leading the rally and commodities are significantly underperforming. Not much new has changed.
    AUD.USD bearish divergence and some other indicators.
    VIX is under 16 = complacency.

    For my IV system ive added in more risk management from my derivatives trading structure which was lacking last time. Only 5 issues in the Australian market are hitting max draw which is abnormal for market lows. The IV system only works in bear markets (I am working on adjusting it for bull markets now) and the normal amount of issues at max draw are usually 30+ before a market bottom is in place (provided history repeats) and these stocks tend to bottom a few months prior to a corresponding major index bottom – leading indicator.

    This post does not constitute investment or trading advice and the class of assets discussed are volatile and risky.

  • 24 Plornt // Aug 4, 2012 at 12:29 pm

    QAN max draw = 68.75 cents – 1.375 cents
    PPX max draw = 4 cents — IV 8 cents
    KME max draw = 1.7 cents — IV 3.3 cents
    TGA (ROE) max draw = 1.06 IV 1.78
    ARI max draw 40 cents.
    MYE (ROE) secondary trigger fire Dec 19 — IV 1.60 = exit 1.60 x 1.5 = 2.40. Major rally trigger did not fire before 2.40
    JMB max draw 3.9 cents — IV 7.8 cents secondary triggers both fired target 13 c.

    Here are some of the best samples (obviously not all like this) using the formulas historically.
    DTG_us max draw 1.20. Exit 48$ in 18 months.
    IIN max draw 22 cents Exit 2.80.
    NCM 1.40 entry (altho exits were at 5$).

    The max draw is usually 50% of the discounted IV figure for 5% IV or 2 months from the trigger highs of the 18% or 40% from 2 months 17% (ROE issues) discounted IV. Exits are usually 50-100% of IV.
    It doesnt always hit max draw and that many times second triggers will fire higher to catch the reversal. 2 different types of triggers which will give an idea as to the magnitude of the move. None of these secondary triggers are firing. There are 4 entries to ensure I am not curve fitting and over optimising. Sometimes one will fire and sometimes all 4 will fire.
    Ive also adjusted the system to work with ROE stocks over >20. It seems I can make variations for all types of market conditions with this formula I created last year so perhaps finally I can make returns in Equities !!! System has worked in every bear market for 30 years so I am optimistic I may have found the holy grail lol or at least something with a very high win rate.

    This post does not constitute investment or trading advice and the class of assets discussed are volatile and risky.

  • 25 Plornt // Aug 4, 2012 at 12:36 pm

    Ive noticed Buffet only did strategies where he would have a low chance of permanent loss of capital and high win rates. He bght stocks and workouts with very high % of winners and very rarely had permanent capital loss. A lot of his outperformance came from WORKOUTS in the 1960s not value equities buying. Buffet was a very good trader.

  • 26 Greg Atkinson // Aug 6, 2012 at 8:33 am

    I like Qantas stocks below $1.00 to $1.10 simply because the breakup value of the company is more than that and eventually I reckon there will be a bid to take-over the company if the share prices remains so low.

    Having said that let me clearly state that is just my personal view and not investment advice. I have picked up a few QAN shares so I of course have a vested interest in wishing the share price up!

  • 27 Plornt // Aug 7, 2012 at 12:07 pm

    Yep Qantas is cheap Greg. Im sure you will do well long term. I am thinking of just buy and hold investing (heaven forbid) based on my formula as so many of the samples kept going for many years. Even if share prices recovered then collapsed again the reinstated dividends ended up being more than the cost price in a lot of samples. It doesnt make any sense to trade equities. I wish I came to this conclusion earlier !

    Although there is not much that is qualifying under the formula yet and a crash is probably imminent. Buy and hold equities + trade futures and fx seems sensible. Buy cheap equities in every bear market. Hold off buying during bull markets (sit on your ass and do nothing as activity creates worse returns and general timing reduces returns – timing through an IV method has worked for decades for many people) – rinse and repeat.

    This post does not constitute investment or trading advice and the class of assets discussed are volatile and risky.

  • 28 Greg Atkinson // Aug 7, 2012 at 12:32 pm

    I am also more of a long term buyer & holder. Sadly during the dark days of he GFC I tried my hand at shorter term trading and failed miserably.

    I might also be tempted back into BHP shares if they go near $25. What worries me though is I have no idea if commodities prices will fall further or not and just how nasty the downturn in China will get.

  • 29 Plornt // Aug 7, 2012 at 12:43 pm

    I am also more of a long term buyer & holder. Sadly during the dark days of he GFC I tried my hand at shorter term trading and failed miserably.

    Yes buy and hold seems to be the only safe way to save you from yourself. I am just going to simply buy when my IV method tells me its cheap and then not worry about exits. That will let the winners run and hopefully during my lifetime I get 2 or 3 outliers that run heavily. If I need to cut volatility I can just trade fx and futures in the direction I see risk.

  • 30 Greg Atkinson // Aug 13, 2012 at 1:04 pm

    Newcrest Mining (NCM) might have been a good buy when they were just under $21. They are on a roll and clear of $25 now. However looking at the BDI gives me the feeling that stocks are going to give up a lot of the recent gains fairly soon.

  • 31 Lachlan // Aug 14, 2012 at 7:19 pm

    I have had to keep all my cash for the last two months to aid my purchase of some land for business. So I have not been able to buy shares. Otherwise I would have proudly announced all my share shopping bargains by now. Anyhow my humble little business has been good to me lately and it’s cruel to starve the poor thing, jamming her hard won gains into other peoples ventures. It’s just a shame I had to do it now alas the timing was key. As for the market it might take another leg down but shorting gets riskier all the time and gold miners are just as likely to not take part in the move anyhow having been beaten to death already.

  • 32 Lachlan // Aug 15, 2012 at 6:42 am

    The dollar index resumed a more bullish short term action last night however it is sailing through some key technical waters right now and for the bears to regain some composure an up move here toward 84 would be needed. Otherwise the prognosis would be a move to lower values starting with support at 81ish coming very shortly.

  • 33 Plornt // Aug 17, 2012 at 1:49 pm

    Gold seasonality bullish into last Aug-Sept + triangulation on Gold may lead to a lower high temporary spike then reversal. Confirmation of 30 td above the uppper symmetrical boundary = confirmed pattern although I dont trade off chart patterns because it seems difficult and unreliable.

    Still bearish gold over 3-4 months, but price can do anything over the next month or so. Gold needs to breach 1750 before I will become bullish – until then lower highs within a cyclical downtrend within a secular uptrend. I hope it does breach 1750 for long term holders.
    NCM bottom does look very convincing though, and Gold miners do look very oversold.

  • 34 Greg Atkinson // Aug 22, 2012 at 3:43 pm

    The slowdown in China and the fall in commodities prices is starting to hit the bottom-line of the big miners. Today BHP reported an annual profit decline of 35%. This is just the beginning in my opinion. From Bloomberg today:

    “BHP joins Rio Tinto Group (RIO) and Xstrata Plc (XTA) in booking declining profits as they battle the dual headwinds of falling commodity prices and rising costs amid sluggish global growth.”

    Source: BHP Annual Profit Declines 35% on Shale Writedowns, Prices

    I have been talking about the slowdown in China and how hard commodities prices would fall for over a year. Seems I wasn’t mad after all 🙂

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