IG Markets Afternoon thoughts 9 June 2011

Across Asia, regional markets are all lower following the sixth consecutive fall on Wall Street. Continued concerns over the health of the global economic recovery are seeing traders cut their exposure to risky assets in favour of safe havens and cash. The Hang Seng is the worst performer, down 1% while elsewhere, the Kospi, Shanghai Composite and Nikkei 225 are all weaker between 0.4% and 0.6%.

In Australia, the ASX 200 is currently flat at 4536, well off its earlier highs of 4557. Once again, the negative sentiment gripping the market has come to the fore with investors continuing to opt to sell into strength rather than letting profits run. While this mentality persists, meaningful gains for the market will certainly be capped. While the materials and energy sectors continue to struggle, the financial sector has enjoyed some welcome buying interest having been heavily sold down over the past few weeks.

There’s finally been some buying interest around today, although not enough yet to drive us higher. For those long-term investors like super funds, which dominate our market place, there is a lot of value in this market. They are likely putting money to work in beaten up blue chip names like BHP Billiton, for example.

From a technical perspective, the daily chart is showing a ‘doji’ candlestick pattern, which is characterised by an open and close price at the same level. This indicates that neither the bulls nor bears were in control, and that the battle is currently even. Previous sessions have been dominated by the bears so this is a marked change in sentiment. Whilst it is not a reversal sign, it frequently precedes a reversal as it indicates a ‘pause’ in the recent bearish price action.

Tonight’s price action will be crucial. The US indices are overdue for a bounce following six consecutive falls; if this plays and we see reasonable gains, today’s evidence of buying support may continue, with gains hopefully accelerating as more traders believe a low has been seen.

ENDS

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