Last week I wrote: “I believe that the latest rally is a secondary reaction and that the ASX is headed for a down-turn, with miners and banks leading the way. But it’s no use arguing with the (ticker) tape.” This week the ticker tape backs up my bearish sentiment, so I am a lot more comfortable.
Iron ore continues to fall, headed for a test of 50.
Banks’ bear market rally also petered out, with the ASX 300 Banks index headed for a test of support at 8000. Breach would confirm the primary down-trend.
The ASX 200 broke support at 5700. Declining Twiggs Money Flow signals selling pressure. Breach of primary support at 5600 would warn of a primary down-trend.
And the broader DJ-UBS Commodity Index is testing support at 82. Breach would signal a decline to test the 2015 low at 74.
But the Aussie Dollar rallied Friday, the large engulfing candle suggesting another test of resistance at 75 US cents.
Miners finished strongly, with the ASX 300 Metals & Mining index reflecting short-term buying pressure. 13-Week Twiggs Money Flow recovered above zero.
The ASX 200 is testing resistance at 5800. A 21-day Twiggs Money Flow trough above zero indicates medium-term buying pressure. Breakout above 5800 is likely and would suggest another test of 5950/6000.
Banks also rallied, with the ASX 300 Banks index headed for a test of 8500. Expect strong resistance.
Perhaps this UBS report had something to do with it.
I believe that the latest rally is a secondary reaction and that the ASX is headed for a down-turn, with miners and banks leading the way. But it’s no use arguing with the (ticker) tape.
A prudent speculator never argues with the tape. Markets are never wrong, opinions often are.
If you want to know why RIO is higher today than when iron ore was at $92 then check this out from UBS:
Hitting the Wall or Just a Wobble?
Australian equities performed poorly in May (falling 3%) despite global markets posting solid gains (rising 2%). The market weakness in May was overwhelmingly driven by the heavyweight banks sector. On balance we believe “hard landing” fears are overdone though we concede that the consumer outlook is lacklustre.
Staying Overweight Resources and Neutral Banks
We continue to overweight the resource sector on the basis of relative valuation, and benign (iron ore) to moderately constructive commodity expectations (copper, oil, mineral sands). With the bank sector off 10% (total return), we think the sector is once again looking “fair” in an absolute sense (12.8x and 5.9% yield) and notionally cheap in a relative sense. A constrained growth outlook and near-term capital uncertainty keep us neutral.
Other Favoured Themes
From a thematic standpoint two of our key themes remain 1) public infrastructure exposure (we continue to hold Boral and Lend Lease Group) and 2) domestic energy suppliers continue to be well supported by investors (we continue to hold AGL Energy, Origin Energy). We continue to overweight US$/US economy plays.
Philip Parker – veteran fund manager decides to sell all shares in Altair’s Trusts to hand back cash and hands back mandates for SMA/IMA’s and also sells MDA family office mandates to cash from shares.
Why?
AUSTRALIAN EAST COAST PROPERTY MARKET BUBBLE AND THE IMPENDING CORRECTION
CHINA PROPERTY AND DEBT ISSUES LATER THIS YEAR
THE OVERVALUED AUSTRALIAN EQUITY MARKETS AND
OVERSIZED GEO-POLITICAL RISKS AND AN UNPREDICTABLE US POLITICAL ENVIRONMENT
The underlined above are some of the more obvious reasons to exit the riskier asset markets of shares and property – in my opinion.
As a result of the above and after 25 years as a fund manager and 30 years in this industry I am taking around 6 to 12 months off. The main reason is in my opinion that there are just too many risks at present, and I cannot justify charging our clients fees when there are so many early warning lead indicators of clear and present danger in property and equity markets now….
Re-published with kind permission from Macrobusiness.
The Age has run a disturbing report on the collapse of TAFE enrollments, driven in part by the uncapping of university places and the bubble in dodgy private Vocational Education and Training (VET) providers:
…[Tafe] enrolments [are] down by up to 40 per cent at some providers, two years after [Victorian] Premier Daniel Andrews promised to “rebuild” TAFE…
Some TAFE buildings resemble ghost campuses, rather than thriving centres of learning…
According to the Education Union, 3300 teachers have left the Victorian TAFE system in the past five years.
…annual reports also reveal that in the past year alone, enrolments have plummeted: Sunraysia Institute had a 21 per cent drop, student numbers were down 12 per cent at GOTAFE, and Melbourne Polytechnic experienced a staggering 40 per cent drop in enrolments…
Bruce Mackenzie, who led the state government’s review into the training sector… says private training college scandals have unfairly tarnished TAFE’s reputation, while a decline in apprenticeships and the uncapping of university places has also driven students away.
“The second tier universities take anyone into their course whether they are suitable or not, which rips the heart out of TAFE institutes,” he says…
But that mess, according to the AEU, started when the Brumby government created an open market system in 2008, paving the way for an explosion in private providers and rorting.
“The contestable policy will always undermine the TAFE system,” says Mr Barclay…
The collapse in TAFE numbers is worrying on several levels.
Recent data released by the National Centre for Vocational Education Research (NCVER) revealed that traineeship and apprenticeship commencements have fallen by more than 45% over the past four years:
Apprenticeship completions have also fallen heavily, down by 24.0% in the 12 months to March 2016.
Meanwhile, the Department of Employment’s most recent skills shortages report showed that “skills shortages”, while low overall, are far more widespread for technicians and tradespeople:
Because they are experiencing relatively few commencements and completions of apprenticeships:
By contrast, the economy is awash with university students, with nearly 730,000 enrolled in a bachelor degree:
Despite graduate employment outcomes falling to “historically low levels”:
Students numbers studying at private VET colleges also soared, guzzling-up public funds via VET FEE-HELP loans and diverting students away from public TAFEs.
As shown below, nearly three-quarters of VET students were enrolled in private colleges in 2015:
And these private colleges charged an average loan amount well above that of public TAFEs:
They also charged average tuition fees of $18,290 versus $7,642 for public TAFEs, as well as accumulated total VET FEE-HELP loans of $2,400 million in 2015, versus just $402 million for public TAFEs:
However, despite the huge imbalance between student numbers, fees charged, and funding, only 14,400 students managed to complete courses at private colleges in 2014, compared with 18,400 students at TAFE and other public providers.
Clearly, Australia’s higher education system is a complete mess. The implementation of demand-driven training systems across Australia has effectively led to an explosion of students studying at university – creating a glut of bachelor-qualified people – as well as students studying expensive diplomas at dodgy private providers. At the same time, a commensurate shortage in people with trade skills has developed, due in part to the decline in TAFE.
What has been delivered is a wasteful, rorted higher education system that has delivered a huge Budget blow-out, poor educational outcomes, and the wrong skills for the nation.
In an ideal world we’d be investing more in our universities, but our world is far from ideal. And so are our unis. They’re inefficient bureaucracies, with bloated administrations and over-paid vice chancellors….
It’s true our unis are obsessed by research, but any innovation this leads is almost accidental. The research the unis care about is papers published in prestigious foreign journals, which they see as the path to what they’re really striving for: a higher ranking on the various international league tables of universities….
The unsatisfactory state of our unis is partly the product of our federal politicians’ – Labor and Coalition – decades-long project to quietly and progressively privatise our universities via the backdoor.
Like so much misconceived micro-economic reform, this project hasn’t worked well. Put a decades-long squeeze on unis’ government funding and what happens? The unis intensify their obsess with research status-seeking and do it by exploiting their market power over students – while building ever larger bureaucracies.
There are some excellent teachers in universities, but they’re the exception. The unis pretend to value good teachers – and award tin medals to prove it – but, in truth, there are no promotions for being a good teacher.
Students are seen as a necessary evil, needed because the public thinks teaching their kids is the main reason for continuing to feed academics….
Universities are gaming the system, maximizing fee revenue by focusing on international rankings while lowering entrance requirements for students.
There is too much emphasis on a ‘prestigious’ university education and not enough on its practical application. Many students would benefit more from studying at technical institutes (many now rebranded as technical or polytechnic universities), technical colleges, TAFE or technikons which offer a balance between practical experience and theoretical studies. This includes not only engineering but architecture, nursing, finance, IT, education, and many other disciplines.
Iron ore broke support at $60, signaling another decline. The medium-term target is $50*.
* Target: 60 – ( 70 – 60 ) = 50
Resources stocks lost momentum, with the ASX 300 Metals & Mining index respecting resistance at 3000. Twiggs Money Flow seemed to be recovering after a strong bearish divergence but has again slipped below zero, warning of selling pressure. Expect another test of primary support at 2700.
The big banks face selling pressure, with Twiggs Money Flow falling sharply. The primary down-trend on the ASX 300 Banks Index, having broken support at 8500, offers a medium-term target of 8000*.
* Target: 8500 – ( 9000 – 8500 ) = 8000
The ASX 200 respected resistance at 5800. Breach of 5700 is likely and would confirm another test of primary support at 5600*. Breach of 5600 would signal a primary down-trend, offering a target of 5200*.
The Aussie Dollar met resistance at the former support level of 75 US cents, with a tall shadow on Tuesday’s shooting star candlestick pattern. Respect of resistance is likely and would warn of another test of support at 73.50. Breach of support would offer a target of 72, putting pressure on ASX stocks as international investors retreat.
The Aussie tends to take its direction from commodities. At present iron ore displays a weak rally that coincides with the rally on AUDUSD. Reversal through support at 60 is likely, and would warn of a decline to 50.
Broad commodity indexes like the DJ-UBS Commodity Index are consolidating in a rectangle, between 82 and 90 on the chart below. Commodities have been trending lower since 2011, as shown yesterday. Breakout above 90 is unlikely but would signal a primary up-trend. Breach of support is more likely and would indicate a decline to test support at the January 2016 low, between 72 and 74.
Growth in total monthly hours worked has slowed to 1.3% for the 12 months to April 2017. In fact, growth has been pretty lean over the last 5 years, except for the period January 2015 to February 2016.
High commodity prices in 2004 to 2008 and 2010 to 2011 coincide with periods of strong employment and GDP growth, as indicated on the chart above.
The current down-trend in commodity prices, depicted on the DJ-UBS Commodity Index above, and low growth in hours worked both point to anemic employment (and GDP) growth ahead.
The big banks fell sharply on the week’s turmoil, with the ASX 300 Banks Index breaking support at 8500. Breach signals a primary trend reversal, offering a medium-term target of 8000*.
* Target: 8500 – ( 9000 – 8500 ) = 8000
Resources stocks rallied over the week. Expect strong resistance on the ASX 300 Metals & Mining index at 3000.
Iron ore continues in a bearish narrow consolidation above support at $60. Breach would offer a short-term target of $50*.
* Target: 60 – ( 70 – 60 ) = 50
These are ominous signs for the ASX 200 which is testing medium-term support at 5700. A sharp fall on Twiggs Money Flow flags strong selling pressure. Breach of primary support at 5600* would signal a reversal, offering a target of 5200*.
