Data Diary

The correction is coming…and so is Christmas

Posted on 17 December 2009

Iron Cuticles here with some final thoughts for 2009 (coming to you through the intemperate haze of a summer flu).

The Australian equities market is at a crossroads – trading in a ever narrower range and refusing to capitulate (as I’d been expecting right about now). Unfortunately, arguments can be made for both another fling higher and a more substantial correction.

The bulls can simply point to the fact that we remain in an uptrend.  The recent consolidation suggests a break of ~4800 would target a swift move to 5100-5200.  Certainly the slow stochastics have retraced to a point that would support the case that this was wave 4 and the final push higher is in the wings.

For a deeper test, need to break the most recent low around 4600, which would take us through the March uptrend and give rise to a great deal of hand wringing and flatulence.  Supporting this view is the crossover of the weekly MACD and the fact that momentum continues to trend lower and has broken to new lows for the move since March.

Interesting that this same pattern is being mapped out in the AUDUSD – except that here the Aussie has broken its March uptrend line.

The carry trade is wavering.  Further strength in the USD could lead to unwinding of risk positions across the spectrum.  For the moment, commodities are hanging tough – consider the chart of the ASX200 materials sector (XMJ):

If we are to have a move lower, this sector needs to join in cause, as with weakness in the financial’s continuing, it has been the metals sector holding our market up.  In fact, could be argued that it will be financials that underwrite a surge higher, as they may be due for a bounce as they approach various moving averages and that damned nicketty March uptrend:

Staples, consumer discretionary and property are also all looking weak – so on balance still favour the downside from here which is why I remain small short.  Just that with Christmas upon us, we have turkeys to stuff and ducks to confit – lack of interest might just dictate that this market goes absolutely nowhere.