Monday, April 2, 2012

All Ords End March 2012 Update

We are in the balance based on the indicators I follow.


All moving averages I follow are pointing up, other than 200.

All the moving averages crosses I follow are positive.

Long Term MACD (170,150,20) was a buy on 19/1/2012 according to Incredible Charts Free Version

Europe has created so much liquidity for the next almost 3 years that few expect a crisis for a year or more even though the PIIGS all have budget and trade balance and current account balance problems that are likely to be insurmountable for probably most of them without continuing drip feed by one subterfuge or other.

US is strong and defying Hussman's and ECRI's calls for recession. ECRI's recession call is so old as to be wrong, certainly in the sense that it was so early as to mislead. I think most people have just moved on to calling it a false call without further qualification or explanation.

Causing Caution

Coppock (14,11,10) has not yet signalled a BUY.

Resistance  at 4400 to 4450 in the All Ords is however very strong as can be seen in the graph at the bottom of the Dashboard. The All Ords has run out of steam above 4300 9 times and fallen back below 4300 and it was over 4400 back on 28 October 2011.

My modified Turtle which is set to minimise, but not prevent, whipsawing does not signal a buy until 4470.

China slowdown continues to bring on commentary and the MACD (170,150,20) is looking like it might break down which could reflect into Australia through commodity prices and volumes.

Australian Economy

Australia maintains the two, three or four speed economy, with those sectors not doing so well calling for assistance and interest rate cuts.

Full time employment and GDP growth remain positive(both YOY), house prices are falling only slowly on average (from some of the highest multiples of average incomes in the Anglo world) and not falling significantly in all markets and inflation has averaged above the middle of the target range for about 2 years, so there does not seem to be a clear macro justification for a cut.

Australia has a good safety net for those who have lost employment because of slowdowns in retail and manufacturing and there are opportunities for those with skills willing to move to mining and processing areas.

The Dutch disease, its likely long term impacts, and the situation in which we will find ourselves if we allow a hollowing out of most of the tradables sector remains a concern, but probably more appropriately handled through fiscal and other policies, not monetary policy.

 Nothing is certain in this world, but my expected outcome is no rate cut in April and none unless the are clear national problems with negative employment growth YOY, major falls in house prices, inflation below the target range (or a clear indication it is very likely heading there).

Sharemarket Outlook

My 3 main scenarios are:
1. continue range trading from a top not higher than 4450 back towards 4000
2. breakout above 4470 but a false break out and no Coppock trigger or a very shortlived trigger undone by the next European, US or Chinese concern. (Spain, Portugal and Ireland are in focus here)
3. breakout above 4470 and a medium term rise of 10 to 30% over 2 years.

If the market breaks out above 4470 I will be in for, say, 50% and if there is a Coppock signal I will be in for the next, say, 50%, but still wary of a crisis induced breakdown.

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