Wednesday

ASX200 Technical Analysis

Any chance of the ASX 200 breaking out on two consecutive days? It would be unprecedented in 8 years of data - so we would say its unlikely but not impossible. Most break outs have occurred during this bear market - as they say the biggest rallies occur in bear markets. There were a handful which occurred on alternate days(!) - so make sure you short sparingly. We opened another $10/point short ASX 200 at 3910 and another order to short at 3950. Looking at our previous analysis on trading patterns a day after a high break out (which occurred on Tuesday with the ASX up 3.4%), the odds are in our favour for a pullback.

Looking at the highs of the day on the day after a breakout, only one (of 133) went above the 2% mark. An order to short at 3950 would be 2% above yesterdays close. Obviously this is a short term day trade (which we try to avoid if possible, preferring a longer term trading strategy). China H-Shares is now up 1.4% at 10800 - this could get ugly if China decides to pull a crazy 5% up day. We find the Australian market following China very closely - we will look into its correlation when we have the time.

Markets are going up (irrationally) with Goldmans better than expected upgrade. Looking at their results closer, half of their revenue/profit (approx 6 billion) was from trading! We have nothing against trading, but it is NOT a value adding business (well not for everyone except their employees). 6 billion dollars have been taken out of the market (from poor traders like us) and into the pockets of Goldman. Great job indeed, let’s see how this great news is going to affect retail revenue, other banks, unemployment, etc. We dislike following the Head and Shoulders herd, but the market looks set to make a sharp fall. The only thing is its getting tight to our recovery date (late this week, which obviously could be +/- a few days), so if this is a false rally, markets MUST go down soon and it needs to go down hard. Best scenario is for Dow futures to rally pre-open for better positioning for us bears - we will set a stop at 4000 for ASX and 8700 for Dow. Other thing going against a fall is the USD, Euro, and Treasuries are going down, which is in line with a recovery. Crude, however is still struggling to break up.

We also opened another 5000 units of Natural Gas ETC at 0.585, so if we get this wrong and markets decide to rally from here, we should see some serious upside with our gas position.

ASX 200 Technical Analysis of Break Outs

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