Wednesday, 8 February 2012

Thank You RBA

Morning All,

Well if you want a catalyst, than here it is. I have always used the charts to guide me in my trading but I certainly do not ignore wider macro and fundamental issues. Yesterdays decision by the RBA to leave rates on hold will prove to be short lived I believe but it does provide us with a double whammy- a technical backdrop with an underlying fundamental catalyst. I think everything is very much aligned now for a genuine move lower in the Australian stock market. Equity investors crave all the help they can get and they will not like this. A falling stock market will force the RBAs hand in time.

What I find particularly interesting is the underlying comments from Stevens and how they reflect a rising stockmarket (an overseas rising stock market that is). I have always admired much of Robert Pretcher's work and his theories on Socionomics. One of the main points he talks about is that SOCIAL MOOD drives financial, macroeconomic and political behaviour. This is in stark contrast to conventional notion that such events drive social mood. The stock market itself is a great barometer of this social mood.

And when I look at some of these comments from Stevens yesterday, I cant help but be struck by the fact that this current wider social mood, manifested in a rising stock market has forced his hand here. For instance, Stevens said:

“Financial market sentiment has generally improved since early December,” and "share markets have risen". The cynic in me wants to scream out here. Of course markets rise when Central banks decide to pump the market with unheard of liquidity. The ECB has handed out loans of $500bn+ for insolvent banks to stay alive, have another punt, and keep things ticking over until the next calamity hits. This money does not get lent out by these banks, but is instead gambled on carry trades. More LTRO financing is coming soon. Hence rising stock market. And we all know about QE in the US as well as what the Brits have tried to do.

There were some more interesting comments such as "Australia's economy is in good shape". Really? I smiled when on the same day that the RBA held rates because our economy is in supposed good shape, Macquarie comes out with a profit downgrade and slashes 1000s of jobs; NAB then stepped up and warned that the sovereign debt crisis was prolonging any hope of a global economic recovery (stock fell -4%). The last employment numbers I saw in Australia were not particularly healthy and no doubt unemployment will be on the rise because retailers, manufactures and banks are ALL cutting costs. I know so many friends and colleagues who are out of work currently- and that is not just finance related. With the Australian dollar where it is, im not sure that will help the tourism or export sectors either.

One final comment I picked up on was that "some progress" was being made in Europe. Yup, Greece is nearly there. O wait.

So that is my rant over. I guess my point is that Central banks and governments have this amazing ability to always be last to the party. They are reactive. Markets have this amazing ability to look the best on the top. The RBA clearly has underestimated what is actually going on within the country and has been distorted by a rising global stock market (which has been engineered by liquidity) and by a few inflation figures. Yesterdays reaction in the market was ugly. I expect more of the same.

So lets run through some charts.

ASX200 60mins:
This is the trendline that has kept the rally intact thus far. If you are a longer term trader, look for breaks of this to confirm a change in the character of this market from uptrend to down. Note the slowing momentum coming into yesterdays high.

ASX200 15mins:
This was the "Test" trade and double top trade I was looking for. Please read my XJO/SPI post here: We have now sold off to a minor trendline which could provide a minro bounce. However, at a minimum I believe that open gap gets filled and lower.

Elsewhere in Asia, things are playing out as per my post yesterday.

HSI Daily:
Another down day yesterday. We are looking at interesting reversal candles here right at the resistance zone.

Shanghai A Shares 15mins:
I put this Ending Wedge up yesterday and we saw the initial confirmation. I am looking for a move as low as 2300 in coming days.

To Australia today.

My SPI range: 4200 to 4260. Outlier levels 4275.

My SPI day trading plan: As per the above, I believe yesterdays move was confirmation that we have seen a meaningful high in Australia. We are indicated at 4250 this morning. I believe there will be solid resistance anywhere from 4255 to 4265 and I am looking to get short in this zone wiht the appropriate confirmation. Scales out of shorts at 4235 but there is an open gap target for this move at 4220/4215 and I would look to cover the bulk of shorts there. I have to be prepared for a even deeper move to 4200 but I might be getting way ahead of myself here.

Obviously I sound rather bearish here so what is my plan if this doesn't sell? Yesterday the SPI was trading at 4265 before the RBA announcement came out. If we can recapture this level and hold, that would indeed be bullish and I would have to give respect to the market if that happened.