Tuesday, 30 August 2011

Feeling Tired

No charts here tonight but just a quick ramble. The Australian market is beginning to feel tired. I know I stressed in my previous posts that now is not the time to be too bearish. For one thing we have rallied quite considerably since those posts. More importantly however, the price action today and during the last few sessions is indicative of a market in a distribution process. Asia has had a number of positive overnight leads from US markets but there has been a genuine lack of follow through. Today we gapped up on the open to test the previous interim highs at 4300 on the SPI futures and topped in the first minute of trade. The market sold off all day closing on its lows. It looked like a clasic bull trap. One bad session overnight and I fear we could be looking at a quick 4-5% decline.

From where I sit, there are not many accounts doing anything. Most do not want to chase this market up here. Volume has completely dried up with only $4.4bln through on Monday despite a 1.5% rally. The Banks have failed to catch a bid for over a week now. RIO does not want to breakout to upside. Energy names like WPL are just not heeding the rally in crude, a bearish divergence. The strongest sectors for the last 2 sessions have all been the defensive sectors namely property, healthcare and utilities. Bottom line, the initial euphoria that saw us rally very strongly off the climatic low seems to have firmly dissipated.

Australia was the first global equity market to bottom in early August. We led the global rally. Again on the 17th August we led global markets as the ASX200 was the first market to put in a interim high before a big sell off ensued which saw the S&P 500 retest its lows. Everything was set for a strong gain today but the market swiftly reversed closing on its lows.  Are we witnessing a lead indication from Australia once more in equities? Dont rule it out.

I am not saying that we are on the cusp of a major sell off. I am however very cautious in the short term. Both the Eurostoxx and the DAX have failed to rally meaningfully which makes me think they are both consolidating before a final thrust lower. Interestingly, despite the rally in US indicies, the credit markets continue to worsen and the TED spread continues to widen. One of them will give and the credit markets have a habit of being way smarter than equity folk.

Good luck. I am looking at good resistance in the Eminis at 1200/1210 tonight. Any more above 1215 and I am probably wrong in cautiousness.