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Australian Investment Blog

Morning Report 24/02/2016

Morning Report Wednesday 24 February 2016

3 very important charts / markets catching our eye today

Good morning everyone Overview Last night the overseas markets followed Australia's lead by commencing a correction to the recent strong advance. Considering the markets were hit on three fronts last night a correction of just over 1% illustrates to us that equities are actually gaining in strength - commodity prices fell, US Consumer Confidence hit a 7-month low and, most importantly, the Chinese Central Bank weakened the Yuan. It is our view that last night’s fall would have been far more dramatic back in January whereas last night's selling was clearly quite orderly when we look at the daily chart of the S&P500 below. As a side note, yesterday was an excellent example of why Technical Analysis / looking at price action should be used by investors as part of the ‘armory’ at their fingertips. Oil Search reported well yesterday and the stock rallied nicely to over $7.50 prior to selling off for no logical reason to close down 3% at $7.03; concurrently the oil sector remained up 0.4%. Of course later yesterday evening all was explained when the AFR led with a story that UBS had placed a large holding of OSH at $6.75 - $200m. This was a classic example of price leads news - people do trade on information! Turning to the Markets 1 S&P500 The S&P500 has initially faltered at the strong overhead 1950 resistance area; not surprising after a 7.5% rally over 7 trading days. Market Matters anticipates another day, or two, of consolidation prior to further gains. What we believe is critical to the next few months is the nature of this second advance assuming it materialises. We envisage two very different potential scenarios: 1. The market will have a relatively lacklustre advance, to around the 2000 area, prior to renewed significant weakness in 2016 - see small green and then grey line below.or,2. The market will accelerate up after a few days’ consolidation, likely to fresh all-time highs - see large green line below.


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