The ASX 200 is testing its new support level at 5600. Rising Twiggs Money Flow indicates medium-term buying pressure. Respect of 5600 is likely and would signal an advance to 6000*.
* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000
Small cap stocks, represented by the ASX Small Ordinaries Index, are weaker, indicating the market remains risk-averse. Twiggs Money Flow below zero continues to indicate selling pressure.
From Jennifer Marohasy:
When all 1,655 maximum temperature series for Australia are simply combined, and truncated to begin in 1910 the hottest years are 1980, 1914, 1919, 1915 and 1940.
…..Considering land temperature across Australia, 1914 was almost certainly the hottest year across southern Australia, and 1915 the hottest across northern Australia – or at least north-east Australia. But recent years come awfully close – because there has been an overall strong warming trend since at least 1960, albeit nothing catastrophic.
……there is compelling evidence that the Bureau of Meteorology remodels historical temperature data until it conforms to the human-caused global warming paradigm.
I would like to see more open debate around this issue rather than the typical “trust me I’m an expert” or “the science is settled” response.
Source: Intent as the enemy of truth – On Line Opinion – 9/1/2017
From Vesna Poljak:
….China’s stimulus is finite and demand for raw materials will collapse without it.
Australian Atul Lele, the Bahamas-based chief investment officer of private wealth manager Deltec, says all monetary and fiscal stimulus has a natural conclusion – “it just ends” – and traditional indicators of commodity prices such as global growth and liquidity conditions have been outrun by prices already.
“Right now, commodity prices are consistent with 8 per cent global industrial production. If we saw that, ex of the financial crisis recovery, it would be the strongest rate of global industrial production growth since 1981, at least. Now I’m bullish global growth and more bullish than most people, but it’s not going to happen and even if it does happen, all you’ve done is justify current commodity prices. So why would you buy a resource stock now?”
China continues to inject stimulus to revive its economy but that is making its financial system increasingly unstable. Credit growth in excess of 30% of annual GDP warns of a banking crisis according to the BIS. And shrinking foreign reserves flag that the currency is under pressure.
China faces the impossible trinity. According to David Llewellyn-Smith at Macrobusiness, a country pegged to the Dollar can only achieve two out of the following three:
At present all three are under pressure.
Source: Best time to short commodities since 2012 says Deltec’s Atul Lele
The ASX 200 is retracing to test its new support level at 5500. Bearish divergence on 21-day Twiggs Money Flow warns of short-term selling pressure. Recovery above 5600 would signal a primary advance to 6000*.
* Target medium-term: 5600 + ( 5600 – 5200 ) = 6000
Small cap stocks, represented by the ASX Small Ordinaries Index, however, indicate the market is adopting a risk off approach at present. While institutional stocks advance, the small caps index is undergoing a sell-off, with Twiggs Money Flow reflecting strong selling pressure.
A line has formed over the last 7 weeks. Breakout below this level would warn of another decline (and a primary down-trend).
The ASX 200 broke resistance at 5500. Follow-through above 5600 would confirm a primary advance with a long-term target of 6000*. Rising Twiggs Money Flow indicates medium-term buying pressure.
* Target medium-term: 5600 + ( 5600 – 5200 ) = 6000
The ASX 300 Banks Index has followed through after breaking resistance at 8000. Expect retracement to test the new support level but respect is likely.
What could go wrong?
….Apart from a precarious property bubble in China fueling commodity exports, a property bubble in Australia fueled by record low interest rates and equally precarious immigration flows, declining business investment and slowing wages growth.
The ASX price-earnings ratio is close to historic highs, suggesting we are in Phase III of a bull market — where stocks are advanced on hopes and expectations of future growth rather than on concrete results. By all means follow the rally, but keep your stops tight.
Some good discussion on our forum regarding current high stock valuations, based more on hopes than on earnings.
This chart of Price-Earnings ratios highlights the problem. PEs for both the MSCI World Index (ex-Australia) and the ASX 200 are close to historic highs (after the Dotcom bubble).
Strong earnings growth would soon fix this but there is little sign of that at present.
From Jens Meyer and Patrick Commins:
A surprise blow-out in the October trade deficit has raised questions about the predicted rebound in economic growth, following the first contraction in GDP in five years.
Instead of shrinking as predicted, Australia’s trade gap widened 20 per cent to $1.54 billion as growth in imports outpaced exports….
Paul Dales from Capital Economics said the October trade number was worrying as it implied net exports – a key GDP component – might be a big drag on economic growth in the fourth quarter, as volumes mattered for real GDP growth.
“This could all change when the November and December trade data are released. But at the moment, other parts of the economy will have to be much stronger to prevent another fall in GDP,” he said, adding that while that was probable, he was nonetheless now more worried about a possible recession.
On its own, the trade deficit is unlikely to tilt the economy into recession but there is a worrying contraction in business investment, outside of the expected mining slow-down, and in wages growth.
Business investment in Australia continues its sharp descent since the end of the mining boom, falling below 14% of GDP for the first time since the Dotcom crash.
Source: RBA Chart Pack
Apart from the expected “cliff” in Engineering, investment in Machinery and Equipment has fallen to record lows.
Source: RBA Chart Pack
Without investment, growth is likely to contract. The impact on Australian wages is an ominous warning.
Source: RBA Chart Pack
From Andrew Hanlan at Westpac:
The Australian economy contracted in the September quarter, with a sharper fall than anticipated.Q3 GDP was -0.5%, after a +0.6%. Annual growth slowed to 1.8% from 3.1%….
The ASX 200 rally stalled at 5500. Declining 21-day Twiggs Money Flow indicates rising selling pressure. Breakout above 5500 would complete a bear trap, indicating a primary advance to 5800*. But reversal below 5400 would signal another test of primary support at 5150.
