Category: Australia & NZ

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Who is buying Australian stocks?

Despite a broad sell-off across global markets, the ASX 200 has stood firm, rallying into the close for the last two days. Low volumes indicate an absence of sellers, but expect strong resistance at 5450/5460. Breach of the rising trendline would warn of another test of support at 5300 and possibly a stronger correction. Breakout above 5450/5460 remains as likely and would signal an advance to 5600*. Primary support at 5050 does not at this stage appear threatened and the index remains in an up-trend.

ASX 200

* Target calculation: 5450 + ( 5450 – 5300 ) = 5600

A rising Aussie Dollar may be contributing to ASX resilience. Performance over the last quarter looks a lot stronger if measured in US Dollars or Japanese Yen. Breakout of the Aussie Dollar above $0.93 suggests a rally to $0.95*.

Aussie Dollar

* Target calculation: 0.93 + ( 0.93 – 0.91 ) = 0.95

The weekly chart presents a more complete picture. Breach of the descending trendline and recovery of 13-week Twiggs Momentum above zero (after a strong bullish divergence) both suggest that a bottom is forming, but we are a long way from commencing an up-trend.

Aussie Dollar

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Asian stocks fall but ASX 200 resilient

The Asia-Pacific region reacted to Friday’s sell-off in US markets, with the Nikkei and Hang Seng currently down 1.5% and 1.2% respectively. The Shanghai exchange is closed for a public holiday, while India’s DJ15 is down 0.67%. The ASX 200, however, rallied towards the close, losing only 0.17%.

The monthly chart of Japan’s Nikkei 225 continues to display a large bearish divergence on 13-week Twiggs Money Flow, warning of long-term selling pressure. Reversal below 14000 would signal a primary down-trend. Recovery above 15000 is as likely, however, and would indicate another advance.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

A monthly chart shows the Shanghai Composite Index on the flight path for a soft landing. Successive falls over the past 5 years have all exceeded the previous trough by roughly 200 points and this seems unlikely to change for the foreseeable future. The problem with a managed descent is that it is likely to endure for a lot longer than a short sharp crash. Breach of primary support at 1950 would therefore offer a target of 1800.

Shanghai Composite Index

Hong Kong’s Hang Seng Index on the other hand displays a large bullish ascending triangle. A 13-week Twiggs Money Flow trough at zero indicates buying pressure Breakout above 24000 would signal a primary advance. Reversal below the rising trendline is unlikely, but would warn of reversal to a primary down-trend.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 17000 ) = 31000

India’s Sensex encountered resistance at 22500 and is likely to retrace to test 22000. Respect would signal an advance to 23000*. Bearish divergence on 13-week Twiggs Money Flow, however, warns of short/medium-term selling pressure. Reversal below 21500 is unlikely, but would indicate another correction.

Sensex

* Target calculation: 21500 + ( 21500 – 20000 ) = 23000

The ASX 200 proved surprisingly resilient, rallying toward the close. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure, but expect strong resistance at 5450/5460. Breakout above 5450/5460 would signal an advance to 5600*. Respect of resistance or a false break, however, would warn of another test of support at 5300 and possibly a stronger correction. Primary support at 5050 does not at this stage appear threatened and the index remains in an up-trend.

ASX 200

* Target calculation: 5450 + ( 5450 – 5300 ) = 5600

ASX 200 VIX below 12 continues to indicate low risk typical of a bull market.

ASX 200

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ASX more tentative

The ASX 200 rally appears more tentative than North American markets. Expect strong resistance at 5450/5460. 21-Day Twiggs Money Flow holding above zero, however, indicates a healthy long-term trend. Breakout above 5450/5460 would signal an advance to 5800*. Breach of the rising trendline, however, seems as likely, and would warn of another test of support at 5300 and possibly a stronger correction.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

ASX 200 VIX below 12 indicates low risk typical of a bull market.

ASX 200

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ASX rally but weak close

The ASX 200 continues to rally, but today’s weak close indicates resistance. 21-Day Twiggs Money Flow holding above zero, however, indicates longer term buying pressure. Breakout above 5450/5460 would signal an advance to 5800*. Weakness from China or the US, however, could drive the ASX lower. Failure of support at 5290/5300 would signal a stronger correction and possible test of primary support at 5050.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

ASX 200 VIX near 12, however, indicates low risk typical of a bull market.

ASX 200

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China rebound boosts ASX

China’s Shanghai Composite Index found strong support at 1990/2000. Breakout above 2080 would suggest a rally to 2150. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Breach of 1990 is now unlikely, but would warn of a decline to 1850.

Shanghai Composite Index

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

The ASX 200 responded with buying support, signaled by two long tails, at 5290. Recovery above 5380 would suggest another advance (confirmed by breakout above 5460), while failure of 5290 would signal continuation of the correction towards primary support at 5050.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

ASX 200 VIX below 13 indicates low market risk.

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Australia’s housing affordability crisis

This private submission by Michael Dromgool to Australia’s Housing Affordability Inquiry identifies supply restrictions as the key cause of the current housing affordability crisis:

Traditionally the flexible forces of demand and supply in the property market self-managed the development of land for housing. Development occurred in locations where and when demand was sufficient to warrant it, with a process that was responsive to demand.

…Now fast-forward to the present day. The government has shut off the supply of land on the city fringe to limit the city to its present size, abolishing a free market system in favour of a centrally-directed scheme that severely distorts the property market…..Smart growth is a deliberate policy to make land more expensive, to increase the city’s population density and force more people into apartments, not the detached houses that most people actually prefer to live in….

Economists and politicians in Australia confidently attribute the decline in housing affordability to strong demand driven by economic and population growth, conveniently neglecting the supply side of the equation…..

Many cities in the United States, such as Atlanta, still use responsive planning. In 1981 more people lived in Melbourne than Atlanta and in both cities the median house cost less than three years of median income in that city to purchase. Over 30 years demand from economic and population growth in Atlanta was stronger than Melbourne, it grew much faster and Atlanta’s population was nearly 50% greater than Melbourne’s by 2011 and the median house price there was $129,400, 2.3 times the median income of $55,800. Yet in Melbourne the median house price reached $565,000, nine times the median income of $63,100. The government tries to convince us that houses are expensive due to high demand, yet they are actually cheaper in a city where demand is substantially stronger. The state government of Georgia drew no arbitrary boundary around the city of Atlanta and consequently it expanded outwards onto greenfield land. In Australian cities, homes are expensive because the land is expensive.

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Aussie Dollar resilient despite ASX correction

China is dragging the ASX lower despite a resilient US market. Breach of medium-term support at 5340 warns of a correction. Declining 21-day Twiggs Money Flow indicates selling pressure and reversal below zero would strengthen the signal. The primary trend remains upward, however, and only breach of support at 5050 would signal a reversal.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

ASX 200 VIX retreated to 13, indicating low risk typical of a bull market.

ASX 200

The Aussie Dollar is also proving resilient, testing resistance at $0.91 and the descending trendline despite weakness on the ASX. Upward breakout would suggest the down-trend is weakening. Recovery of 13-week Twiggs Momentum above zero would go further, signaling a primary up-trend, though only breakout above $0.97 would confirm. Reversal below medium-term support at $0.89 remains more likely, however, and would warn of another decline. Breach of primary support at $0.87 would offer a target of $0.83*.

Aussie Dollar

* Target calculation: 0.87 – ( 0.91 – 0.87 ) = 0.83

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ASX and Aussie Dollar retreat

The Aussie Dollar retreated from resistance at $0.91 and is likely to test medium-term support at $0.89. Breach of support would test the primary level at $0.87, while respect would favor another attempt at $0.91. The primary trend is down and failure of primary support would offer a target of $0.83*.

Aussie Dollar

* Target calculation: 0.87 – ( 0.91 – 0.87 ) = 0.83

The ASX 200 followed the Aussie lower, retreating below 5450 on the daily chart. Retreat of 21-day Twiggs Money Flow below zero would complete a bearish divergence, warning of a correction. Failure of support at 5350 would confirm. The primary trend remains upward and only breach of support at 5050 would signal a reversal.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

ASX 200 VIX below 15 continues to indicate low risk typical of a bull market.

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ASX 200 likely to follow

The ASX 200 indicates short-term buying pressure with a hammer candlestick followed by a harami formation. Rising 21-day Twiggs Money Flow also suggests medium-term buying pressure; completion of a large trough above zero would strengthen the signal. Breakout above 5450 is likely, after the strong showing in US markets, and would signal an advance to 5800*. Reversal below 5350 is unlikely, but would warn of another correction.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

ASX 200 VIX below 15 continues to indicate low risk typical of a bull market.

ASX 200

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