31 August 2009 – Month End

A big day of events for the local market that leaves a sour taste for the near term well being. I suggest we may have seen a high today and that the awaited correction we’ve been looking for over the last few weeks may have started. Today saw a lot of shenanigans take place with month end, many stocks going ex-dividend as well as MSCI re-weightings of the ASX. The re-weightings created a lot of selling and closed the market very weak. Added to this was China dropping 6%. The rapid increase in volatility over there is a concern. The bearish divergence we’ve been on about for the last week or so has continued to build so todays early attempt to trade higher followed by a very weak close is a high alert proposition. I hedged my exposure using futures contracts and will keep these open for the near term.

28 August 2009 – Watch for weakness

There remains significant technical weakness in the charts of the major indices. These have been in place for a week but they also start at the forefront of concerns. We’ve spoken of the various divergences but we now also have 3 red alert bars. These pop onto my chart when price has extended beyond 2-standard deviations of a median price, in other words extending into an area that tends not to be able to be supported for long. History shows that when we get 5 or more of these red alerts the market has a higher chance of reversing. We have 3 at present but we also have confluence of other signals. Also to not today is that  the daily trend has again turned flat.

August 28 2009 – New Setups

A number of new setups tonight most of which are momentum based. Also, in tonights ASX-200 (XJO) review I’ve taken a closer look at the comparisons of the current advance off the March lows to that of 2003 which are number of brokers are quoting. Its an interesting story, albeit one I’m not entirely convinced of. As you’ll see I’m more than happy to be proven incorrect and for once like to see the Brokers correct on their assessments. Even though a number of new setups have popped up it does not take away the various divergences across global markets. As always, trade carefully regardless of how strongly you feel about this current strength.

27 August 2009 – Watch the US divergences

An alert was sent out this morning warning of ongoing divergences, in todays case that between the Dow Jones Industrials and the Dow Jones Transports. This one has served us well in the past so its worthy listening to it again. It by no means portends the depth of decline but when we saw the same in July the US markets dropped about 10%. Many brokers are quoting similarities to the 2003 bear market low and subsequent recovery. Back then the market rallied for two full years without any declines exceeding 5%. In fact there was one decline of 4% late in 2003 and then a 3% decline in early 2004. I’m not convinced that we can associate the recent bear market with the 2002 – 2003 version though. I sold some SPI futures this morning to hedge positions across my own portfolio’s but covered the hedge late in the day after the market rallied back from early weakness. The SPI has actually closed above the cash in late trade so its been a strong performance, at least locally. We’ll see what the US holds for us tonight though.

26 August 2009 – High Alert

We now go onto high alert as we have several divergences occurring over various technical fronts. We’ve discussed the standard divergence we always use and we’ve touched on the momentum divergence. We also now have significant divergence occurring with regard to the Dow Jones Industrials and Dow Jones Transports. Last night the Industrials managed to rise +0.04% whilst the transports dropped -1.49%. The last time we saw this the market dropped some 10%. Extreme caution required.

26 August 2009 – Strong volume

A strong day today based on price action, close and volume. Volume was particularly strong and word is that institutions have been (1) caught overweight in cash and (2) caught by the earnings results. They are now playing catchup. There has also been some corporate activity, i.e. takeovers such as SGX and FLX and this too has placed a very positive on price activity. And to think that Australia is still the worst performing market in Asia! Hong Kong, China, Korea and Taiwan have all bounced over +40% YTD whereas Australia is lagging at +20%. We kind fight the trend and who really knows where it can go?

24 August 2009 – Slow Trading

A day of consolidation and a positive considering the move into these new highs. I remain very wary of the Type-A Bearish Divergence showing and in fact we now have the same bearish divergence showing on the momentum indicator. The last time we saw it there was back on the June highs before the market slipped 10%.

24 August 2009 – Great catchup after Friday

We stated on Saturday morning within the US Power Setups comment that Australia would have a significant day of playing catchup. We weren’t disappointed. China had closed the day higher after the ASX closed and then the US came through with some more positive data and away we went. The Chinese markets had another strong day. Todays strength turned the daily trend back to UP from FLAT and quite frankly it looks like the same kind of price trend we saw off the March lows – one or two negative sessions before buyers stormed in and took price higher. You can’t fight the trend and todays action looks a lot healthier than what we were exposed to just a week ago.

21 August 2009 – Homes sales rescue

Home Sales data ignited the market right from the open to see the highest close since the March lows. By the time the US session started China had closed +1.7% meaning that Australia will play significant catchup come Monday morning. We can’t dispute the trend here and we can’t fight it. At this stage we’re running about 7 long positions in the US and I’m happy to see those run their course. Of concern is significant Type-A Bearish Divergence very similar to what we witnessed back in June. Daily and weekly trends are up. Daily momentum is up. You can’t be short but watch that divergence.

August 21 2009 – Divergence take its toll

The market got thumped today mainly because China announced that it was reeling in the lending criteria by banks. There is even suggestions that banks need to sell shares to lift capital adequacy ratios. This was enough to spook local traders but it also comes hot on the heels of the weakening technical patterns being built since last Friday. We’ve warned all week about the Type-A bearish divergence and longer term readers will kow that its a keen reversal signal that rarely fails. The last two days have also seen very weak closes suggesting sellers were at work. The daily trend is now flat. Daily momentum remains up, but barely.

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