Monday, January 10, 2011
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End of Week Market Analysis - 8th January 2011
The Market
The ASX200 (XJO) is still in a sideways bullish holding pattern. The trend line, from a low at 4182 on 6 July 2010 through to the accumulation zone in late November, early December 2010 has been respected after a small, weak correction since the start of 2011.
There is very firm resistance at 4800 points, and similar strength of support at (intra-day) 4550 and (closing) 4600.
Secondary indicators suggest continued weakness to the upside, with nothing confirming or suggesting a sustained upward trend - past 4800 - at this time.
However, recent price action in the last week, which is somewhat oversold, suggests a possible short-term trend, with a target of 4800 points (resistance).
The XJO remains cyclical at best, a medium term strangle (4850+/4500-) or OTM Bear Put Spread appear to be the best trading opportunities at this time.
Banks
CBA and WBC have remained in a structural Sideways Bearish pattern since May 2010. This is endemic of the so-called "Big Four" banks.
CBA has recently undergone a short term correction which appears to be running out of puff at just below $50 per share, although the Negative DI on the Directional Movement has not confirmed the end of the downward move, staying above its signal line.
Although CBA remains in an overall bearish position, both in the short and medium term, support may be gathering coming up to earnings season. It has a net dividend yield of 6.1%.
Suggested trade: stand aside until "End of Correction" or "Short Term Uptrend" price action is confirmed. Possible medium term OTM Bear Put Spread at $52-$53 area.
WBC's price action is very similar although its correction (from a high of $23.20 to almost $22) has been longer than CBA with a pause at $22.60/70 area, before finding support at $22.
And similarly, WBC is still bearish in both timeframes, with Negative DI still well above its signal line and negative momentum still in place. There has been no short trend cyclical change with WBC yet.
Suggested trade: as above, stand aside until price action is identified and confirmed.
Miners
BHP is driving this market with a medium term trend from late August, 2010 still in place, with a support trendline in the $44.50 area. Momentum is slowing down, and the main cycle is indicating a possible correction or sideways action in the weeks ahead.
In the short term, BHP has had a mild correction after hitting a near Xmas high of $46.48. The current price activity could be somewhat oversold, particularly if BHP respects its medium term EMA and weekly trendline.
Suggested trade: "End of Correction" on confirmation: $44 or $44.40 upper strike Bull Put Spread
RIO is also driving alongside BHP having risen almost a third since its $65 low in July 2010. It has gone sideways since reaching a frothy $88 high in mid-November 2010 with two subsequent corrections and a small and short uptrend. Resistance at $88 appears to have set in the mind of the market.
In the current correction/sideways bear move, RIO is approaching its medium term EMA (approx. $84). A close below this level would suggest a large down move, but all secondary indicators are oversold.
Suggested trade: "End of Correction" on confirmation: $84 upper strike Bull Put Spread
Woolworths (WOW)
WOW is consolidating in its nearly 3 year old trading channel after reaching a high of $30 on October 7, 2010. Price bounced off the new higher support level of $26 after the October correction and has returned there again after a lacklustre Xmas trading period.
In the short term, expect WOW to bounce off the $26 support for a "End of Correction" price action, but with continued sideways weakness.
Suggested trade (if confirmed by secondary indicators): Bull Put Spread at $26 upper strike
All chart image screenshots from Incredible Charts.
The ASX200 (XJO) is still in a sideways bullish holding pattern. The trend line, from a low at 4182 on 6 July 2010 through to the accumulation zone in late November, early December 2010 has been respected after a small, weak correction since the start of 2011.
Secondary indicators suggest continued weakness to the upside, with nothing confirming or suggesting a sustained upward trend - past 4800 - at this time.
However, recent price action in the last week, which is somewhat oversold, suggests a possible short-term trend, with a target of 4800 points (resistance).
The XJO remains cyclical at best, a medium term strangle (4850+/4500-) or OTM Bear Put Spread appear to be the best trading opportunities at this time.
Banks
CBA and WBC have remained in a structural Sideways Bearish pattern since May 2010. This is endemic of the so-called "Big Four" banks.
 |
| CBA weekly price since May 2010 |
CBA has recently undergone a short term correction which appears to be running out of puff at just below $50 per share, although the Negative DI on the Directional Movement has not confirmed the end of the downward move, staying above its signal line.
Although CBA remains in an overall bearish position, both in the short and medium term, support may be gathering coming up to earnings season. It has a net dividend yield of 6.1%.
Suggested trade: stand aside until "End of Correction" or "Short Term Uptrend" price action is confirmed. Possible medium term OTM Bear Put Spread at $52-$53 area.
 |
| WBC finding support? |
And similarly, WBC is still bearish in both timeframes, with Negative DI still well above its signal line and negative momentum still in place. There has been no short trend cyclical change with WBC yet.
Suggested trade: as above, stand aside until price action is identified and confirmed.
Miners
BHP is driving this market with a medium term trend from late August, 2010 still in place, with a support trendline in the $44.50 area. Momentum is slowing down, and the main cycle is indicating a possible correction or sideways action in the weeks ahead.
 |
| BHP still rising? |
In the short term, BHP has had a mild correction after hitting a near Xmas high of $46.48. The current price activity could be somewhat oversold, particularly if BHP respects its medium term EMA and weekly trendline.
Suggested trade: "End of Correction" on confirmation: $44 or $44.40 upper strike Bull Put Spread
RIO is also driving alongside BHP having risen almost a third since its $65 low in July 2010. It has gone sideways since reaching a frothy $88 high in mid-November 2010 with two subsequent corrections and a small and short uptrend. Resistance at $88 appears to have set in the mind of the market.
In the current correction/sideways bear move, RIO is approaching its medium term EMA (approx. $84). A close below this level would suggest a large down move, but all secondary indicators are oversold.
Suggested trade: "End of Correction" on confirmation: $84 upper strike Bull Put Spread
Woolworths (WOW)
WOW is consolidating in its nearly 3 year old trading channel after reaching a high of $30 on October 7, 2010. Price bounced off the new higher support level of $26 after the October correction and has returned there again after a lacklustre Xmas trading period.
In the short term, expect WOW to bounce off the $26 support for a "End of Correction" price action, but with continued sideways weakness.
Suggested trade (if confirmed by secondary indicators): Bull Put Spread at $26 upper strike
All chart image screenshots from Incredible Charts.
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