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Latest Dow Jones Chart

Last nights movement has seen the Dow Jones bounced off the 50% retracement level during the last session.

The resistance level that has become support over the last couple of weeks came in on high volume and we have now the 3rd day down. The next couple of days will be crucial for the future direction of the indexes as a whole. If we get a move to the long side over the course of the next couple of days then we would expect this market to continue this current bull market to continue.

Will update over the course of the next couple of days as too future direction of the markets.

What happened to cause 1000 point drop in the Dow?

What caused the Dow Jones Industrial average to fall 1010 points or close to 10% during last Thursday’s session?

Like most instances it appears that it wasn’t caused by one single factor rather a combination that culminated in a wild roller coaster ride that for 20 minutes caused the fastest and largest percentage drop since the 1987 stock market crash.

Global markets have been transfixed with the situation with Greece’s sovereign debt issue and the worry that this will flow into other areas of Europe and consequently the global. This uncertainty has driven the markets down for the last couple of weeks but with all this uncertainty and fear in the markets the Dow Jones was down just on 4% from its highs prior to last Thursday.

At 11am the Dow Jones Industrial Index was down 60 points with the selling volume being heavier than normal. The number of stocks that fell without first moving up was at its highest level since the terror attacks of September 11.

It is now 2pm and the Dow Jones is down just over 200 points and all financial markets where feeling the strain. European equity markets were down solidly from the spillover from the Greek Debt Crisis. The Euro and Yen were both down solidly against the US Dollar and the bond markets were solidly sold off.

Shortly after 2.15pm in Santa Monica, California, hedge fund Universa Investments that manages close to $4 Billion USD, placed a trade for 50,000 S&P500 Put Contracts worth approximately $7.5 Million. Normally such an order wouldn’t put a ripple into the market, but on the Chicago Board of Exchange on this particular day, this was the straw that broke the camels back.

The traders who had taken the other side of the order went to hedge there position in the market by selling futures contracts into the market. Other traders went on to hedge their bought futures contracts by selling physical stock on the New York Stock Exchange and NASDAQ Exchange.

The hedging that takes place is all done via computers and at super-fast speeds. Computer trading was stopped after the 1987 Crash and deemed illegal by the exchanges. Computer trading now accounts by some estimates for more than 2/3rds of the volume of the New York Stock Exchange and the theory is that it provides much needed volume and conversely liquidity for the market.

The sheer volume of the orders generated by the program trading clogged the Arca Electronic Exchange and orders that normally take 1/300th of a second to execute were now taking 2 minutes to be actioned.

With the huge volume of orders going through the market, the people that control the some of the super-fast trading hedge funds, that provide much of liquidity for the exchanges, pulled out of the market altogether in an effort to find out what had happened with the market. The computers were moving faster than the human brain could comprehend.

These computers that normally supply volume to the market and allow traders to execute their trades in a timely and fare manner, disappeared. When this happened, there was literally no-one to buy any shares. I one extreme case Procter and Gamble went from $63.00 a share to $0.01 in under 20 minutes. The exchange later corrected the trades.

By 2.40pm in the afternoon the overload had taken it toll on the NYSE’s Arca electronic trading system. Other exchanges including NASDAQ and the Philadelphia Stock Exchange detected questionable information in the data and stopped routing orders through to the Arca System, effectively “pulling the plug”.

3pm and the selling pressure had stopped due to all the automated computer links being reset and the market climbed quickly. One factor behind the swift recovering was the same computer programs that forced the fall in the first place, now detected good value in the market and bought stocks up across the board cheaply.

This rollercoaster of a ride is yet another symptom of a financial system that is still has to be corrected from all the lax regulation over the last 10 years.

The global financial crisis was caused by the inability to value mortgage backed securities. The laws that were in place from 1932 to stop the collapse of the financial system by banks becoming to large were repealed in 1999.

The “up-tick” rule only allows “short selling” once a stock has moved up in price became part of the market rules in 1932, it was removed to allow increased volume from computer trading in the mid 1980’s and then reinstated after the 1987 stock market crash. Over the last 10 years it was then removed again and then in 2008 was reinstated.

After everything that has happened during the last couple of years and with the damage that it has caused to the global economy is seems amazing to me that the rules that were put in place after the worst bear market in history to prevent it ever happening again, have been so easily cast aside by the authorities.

For those of you that follow my work will know that I am a big believer in cycles both in and out of the financial markets, and that unfortunately in some cases history repeats itself time and time again.

There will be an analysis of what has happened over the course of the last couple of years in the financial markets and in the economy and “new” laws and regulation will be put in place to “protect” investors and the cycle will start again.

Maybe the people that we should be protected from are the Government officials who think its OK to tinker with financial market regulations.

Got it wrong I did

Ohh well the RBA does what it says it needs to do. Up 0.25% or 25 basis points just a minute ago.

This should well and truly cool the housing market now.

 

Rates up today?????

Time will tell but those of us here are split on whether the RBA will or will not raise rates today. Personally I am hoping that the cooling we are seeing in housing will be enough to put the brake on the RBA for this month at least.

After all the RBA Gov said that if they had known the pullback had occurred in housing before the last rise they would probably have held off.

So who knows maybe this time they will heed their own advice!

One of those days

Just one of those days today ASX opened up then looks like spending the rest of the day going back to its starting point.

Up 8 points as I type and flat as a tack. looks like we have started Easter early here

 

The Oracle

 

XJO on the edge

Ok my trader sense (bit like spidey sense but different) is twitching and telling me that the island reversal we are getting today is a sign of things to come.

the Oracle

ASX 200 up for lunch

The ASX 200 is up for the day and at lunch 31 points with everything going along just fine. Our MQG and PPT shares are up well .

 

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Things looking good for the ASX today

The DOW was up 102 points S&P500 8.36 It has got to be looking good for a great day for us.

 

Trades looking Good

ASX up for the day PPT’s looking good as is our MQG’s

 

MQG on target for a great trade

MQG is doing great for us

We got in early and it looks like breaking the resistance level

Returns will be great

 

the Oracle

Looking at the ASX200

The XJO still looks like it has some steam left in the present push forward. The Fibonacci levels are still in play from the last retracement.

Look for a little pullback then we go again.

National Australia Bank Update

National Australia Bank appears to have broken the trading range that has been in play for a while now.

Good target for the flag pattern !

Looking at the ASX200

The XJO still looks like it has some steam left in the present push forward. The Fibonacci levels are still in play from the last retracement.

Look for a little pullback then we go again.

Thoughts for the day

ASX looking to go a bit further South while the Yanks digest the Obama health reform

Macquarie Bank and National Australia Bank

Two very interesting charts have come up in the last couple of days. Both Macquarie Bank and National Australia Bank are in solid flag patterns.

We could be seeing some very interesting moves in both stocks coming up in the coming days.

Newcrest Mining and Gold

Newcrest is presently in a flag pattern and based on the movements in Gold overnight, Newcrest Mining has the potential to break that flag pattern.

The target out of the flag pattern is $37.00 which is also the fibonnaci extension target as well.

Certainly something to keep an eye on.

Good Hunting

Toll Holdings

Toll Holdings has bounced nicely from the 50% fibonnaci level and appears ready to make a decent retracement back up the long Candle that happened after the recent results.

The potential target out of the present pattern would be somewhere in the $7.70 region. A break in the trendline on the RSI and a move above $7.20 would confirm this bullish move.

Good Hunting

Euro Update

The accumulation that I flagged last week in the Index Report in the currency still appears to be going on. The present pattern that we have seen over the last week is one of exhaustion and the failure to reach down to the 1.3300 level during the last week is another indication that the Euro is oversold in the short term. With the performance and movement of Cable over the last week we could be seeing a switching out of being short the Euro into being short Cable. I would be cautious about being short at the moment.

QBE Insurance Update and View

QBE Insurance has been in a consolidation pattern for the last 4 months like the rest of the market. The stock is presently poised and is in an inverse head and shoulder pattern.

A break of Fridays high should see the neckline nicely broken on this inverse head and shoulders pattern and potentially target somewhere towards the $25.00 level.

The stock is currently trading on a attractive yield of 5.44% and with a price to earnings on just under 11 times the stock is not expensive compared to historicals.

Its something to watch closely over the next couple of weeks.

FTSE Index Update

We have had the FTSE break both the recent downtrends over the last 2 weeks and with the current higher high and the bounce from the 200 day moving average, it appears that the UK Index is now on the road for another run north over the coming weeks and months.

The 5 wave structure is the same as the ASX200 that I flagged earlier in the week. We are presently at a cross roads with the indexes. We could either see a retracement back to roughly 50% of the recent move up before going long again, forming an inverse head and shoulders pattern and then giving us a target just to the outside of the top of the trading range that we have been in for the last 4 months, or we could have a strong acceleration out of this pattern as short covering and new money flood into the markets.

Something to watch very strongly over the course of the next week or so.

ASX200 Index Update

The ASX200 Index has been waning of late and a lot of commentators are looking for lower prices, myself included up until recently.

The price action over the last couple of weeks has been struggling to go lower. Looking to the chart for the XJO we can see an inverted head and shoulders pattern marking the end of the downward movement. The market in June/June then broke the neckline and put in a target higher than it should have been. The period since September has been trading sideways and not really doing anything. For those of you that follow Elliot Wave theory, there are certain rules that the market is following at the moment. Wave 3 is typically the longest wave, but cannot be the shortest, and as wave 3 is clearly longer than Wave 1 this saying holds true. One of the other rules is that out of Waves 2 & 4, if one is a simple wave then the other must be complex. Wave 2 was simple due to the short sharp nature of the retracement, and wave 4 is complex due to the time taken and volatility during that time. Based on the pattern, the target for a wave 5 would be somewhere about 5400 or so. This coincides nicely with the fibonnaci targets as well.

So be wary of being too short this market at the moment.

Australian Stock Exchange - Company Update and View

Australian Stock Exchange has underperformed most of the other financial on the ASX200 over the last 12 months. It has fallen out of favour along with most of the other global exchanges.

The present yield and the near monopoly position that it enjoys makes it worthy of having a good look at it.

The present technical chart on the stock is very interesting. After such a protracted downleg and the consolidation that the stock has been subject too, a move above the $37.00 to $38.00 level could set it up for a very solid run over the course of the next 12 months. The solid consolidation basing pattern is a very good sign for the stock going forward.

National Australia Bank - Company Update and View

National Australia Bank has been held back recently against all the other banks due to it recent attempt to takeover of AXA.

There is strong dividend yield at present being at 5.92% fully franked and a very attractive Price to earnings of 9.39 times. The business is cheap on a global basis and Australian Banks are listed in the top ten banks globally. The present market Cap of $51 Billion is larger than Citigroup.

The takeover of the wealth management business AXA is important for the bank long term due to the wealth management component that it will add to National Australia Bank's already growing wealth management business and will help diversify away from the margin squeeze in the lending area.

As per the attached chart the stock is attractive and is over sold in the short to medium term basis. It would not take a lot for the stock to turn around.

Dow Jones Update

Looking at the Dow Jones at the moment, it appears that exhaustion is starting to come in on the downside. I have thought that that markets were overdone on the long side for a while now and have been of the opinion that the market could be going lower. The lack of conviction with the downturn is turning into the possibility that this is nothing more than a consolidation pattern. The 200 period moving average that was strong resistance mid last year, now could have the ability to be strong support. The level of bearishness out there amongst traders suggests that a lot of people are already short. Unless we see some major changes in the index over the next couple of days we could see a break of the trendline and the market move to the longside to complete a fifth wave.

Aristocrat Leisure - ALL

Aristocrat is still following the script. Fell today on greatly reduced volume. Something to watch very closely.

Telstra - Company Update and View

The market was unimpressed by Telstra's recent company results.

There were a number of factors here. The EBITDA was down by 0.3% to $5.32 Billion. Revenue for the six months ending 2008 was down by 2.8%.

The company said that it was experiencing "challenging market conditions". Revenue from traditional fixed line was down by $222 Million. Revenue from other businesses were down by $53 Million. Revenue from mobile services, how ever was growing strongly , up $145 Million.

The stock has been trading in a consolidation pattern now for over 12 months against the recent rally in the stock market. It has not enjoyed the upward momentum, that a lot of other stocks have enjoyed over the last 12 months. The stock is currently trading on a dividend yield of 8.26%, which is extremely attractive.

In my experience, when stocks start to pay yields that are self-funding then you tend to find that they have bottomed. When I talk about self-funding it means that the yield from the security is greater than what you can borrow funds for. I am not saying that the stock is ready to turn around and rocket to the moon, but it is attractive down here against other forms of investment yields such as term deposits and such.

Happy trading

All that glitters is Gold

We have had triangulation for the downside, the with the present creeping trend I would expect that it would fail to get below $1027.00. The present pattern is one of consolidation and is not a topping pattern in my opinion. There is a large flag forming that has been more than 5 months in the making. The target out of this flag pattern is between $1310.00 and $1344.00 an ounce. Something that I would not be short at the moment.

Aristocrat Leisure - ALL

Aristocrat Leisure looks to be bucking the trend of the rest of the index with some seriously nice patterns for the long side. Nice triangulation on the fibonnaci and was confirmed with the touch of the fibonnaci targets. The declining volume over the last 4 days while the stock struggles to go down anything close to the rest of the market is a good sign.

Bramble Industries - BXB

Brambles Industries looks pretty interesting at the moment. The fibonacci sequence has the potential if it can move above $6.90 for a decent move to the long side

Liquid Natural Gas up 5.5% overnight

As you know LNG is one of my most preferred commodities over the coming years. It was up strongly last night by over 5.5%.

Sensex Index - Indian Market

The Indian market, like most of the other asain indexes, has been in a better situation that the US Indexes. I would expect this to continue. The index has been consolidating since September and would expect these to outperform the US Indexes over the coming weeks and would expect a rebound in this index within the next couple of days. I will be looking for where this rebound retraces to before looking for a downside atrget and if that downside target will break the range. This index could move down by more than 10% before I would consider it to be in a bear trend.