Day Trader column for August 16 – 2011

3,800 was the lower end of support for the All Ords when it traded in a sideways range in September/October 2008 before the Final Fall to the 3,100 low of March 2009. 

3,800 is also the lower end of the consolidation between April/July 2009 before the All Ords ran up to the 5,000 level.  

This significant support/resistance level proved just how strong it was last week when the market bounced off it.   

After the Big Turnaround on Tuesday the strength tapered off over the second half of the week, but the market still managed to form a clear weekly reversal candle to the upside.  

Friday’s action on the other hand formed a daily reversal candle to the downside - so we may see some retracement of last week’s rally - then possibly a further move up.   

As the May 2010 low of 4,100 has been decisively broken there is now a target, depending on how you measure it, of between 3,150 and 3,330.  So I expect some sort of a rally before the move down to these target levels, at which point the current downtrend may reverse.

If the All Ords were to break below 3,100 then we can expect to see some serious falls, possibly down to levels not seen for fifteen to twenty years.   

As an aside I find it interesting that various market commentators and economists over the past week or so have stated they have not known such volatility in markets over the last thirty years.  

That is true but if history is studied it will be found such volatility did occur in the late 1920’s.

I also find it difficult to understand how our politicians and economists can believe our economy can remain insulated from the rest of the world when it is considered that if the United States and European economies slow any further, then exports from China to these wealthy regions will also slow.  

At present China needs these exports to fuel its economy. 

If these exports slow, China will need less of our minerals and our economy will be in big trouble.  

China for various reasons is also experiencing a huge housing bubble and when that bubble bursts as history has shown all bubbles do, it will add further to their growth problems.

Despite all the above some stocks in the Energy, Medical and Resources sectors are still holding up remarkably well. 

 We have Cooper Energy (COE) which has continued to trade around 40 cents for the past twelve months. 

Copper Strike (CSE) admittedly a low priced stock but it has had a big lift in volume over the past couple of months and its price has risen over fifty percent.    

Exco Resources (EXS) has been trading in the sixty cent range for most of this year and this is near its all time highs. 

Some gold stocks have also out-performed the market as would be expected with the recent increase in the gold price.   Newcrest Mining (NCM) and one of the smaller gold miners Red 5 (RED) are two examples.    

Still, stocks that have held their own or outperformed are few and far between.

Most finance stocks have been weak and although they recovered some ground last week, their volumes dropped off after the big turn- around last Tuesday.   The four major banks for instance fell below strong support levels last week, so I would expect more weakness from them.  





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Portfolio Position


Cash       $304,646

Shares     Nil

Total       $304,646

Starting capital $50,000 in July 2006