Market not out of the woods yet

Market not out of the woods yet

By Ric Spooner (Chief Market Analyst, CMC Markets)
22 April 2013

This morning’s firm market opening represents a steadying of the ship. The rally in US markets on Friday was encouraging but it would take a significant rally in commodity prices to justify a conclusion that the recent sell off in gold, copper and oil has finished.

Markets have been encouraged by signs of bargain hunting in some commodity markets over recent days. However, in supply driven markets, large inventories and production overhangs have a tendency to cap rallies. Today’s limited moves in the resource sector reflect ongoing investor caution at this stage.

While resource stocks have recently held centre stage, the banks and large defensive stocks may well hold the key to near term direction for the overall index. Most of these stocks are trading at very generous forward Price Earnings Multiples compared to long term averages. While this is justified by current low interest rates, these stocks may struggle to make much more ground and are vulnerable to a corrective sell off if markets get a scare for any reason in the near future.

From a charting point of view, the S&P/ASX 200 index still looks to be correcting the November/March rally. It would take a move past the 5163 high to definitively change this outlook.

In the meantime, the index is forming a triangle formation. The boundaries for this are currently between about 4915 and 4990. A move below the lower support level could be the trigger for the resumption of a deeper correction.

The Yen is another interesting market for technical traders this morning. The currency sold off in advance of the G20’s fairly predictable move not to brand recent BOJ monetary initiatives as currency manipulation. However, it is struggling to move past the early April peak and 100 against the US dollar this morning. This will be an interesting short term test. Failure to conclusively clear this level may lead to profit taking leaving us with a potential double top formation.

www.cmcmarkets.com

ENDS

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