PORTFOLIO POINT: As crude oil starts to lift, the ASX 200 Energy index has broken out of its ascending triangle pattern as the rest of the market moves sideways.
All quiet on the western front. Markets are tracking sideways and in the case of US markets and Apple, perhaps working off their overbought conditions before heading higher. I still would not chase either, or are they the same thing?
In the case of the Australian market, nothing has been proved yet. Both the ASX 200 and the ASX 200 Financials index are still in their ascending triangle patterns. I am waiting for the market to tell me which direction we are heading next.
In the case of the Australian dollar, after testing the 30 day moving average yesterday, down at $US1.06, it has rebounded and is back testing its 200 hourly moving average and does have a feel of renewed vigour about it. I have squared up my shorts on AUD/USD but I still am short the Australian dollar vs the crosses – especially the euro, which looks the most constructive chart.
Crude oil is starting to get going and is heading towards last year’s high of $US115 a barrel. Crude rising will initially be a positive for the risk trade, as it will lift energy stocks and other commodities along with it.
However, if crude breaks last year’s highs, and the newspapers and talking heads on CNBC start discussing it non-stop, then it will bite into US consumer confidence.
There is one sector that crude is biting into already. The chart below of The Dow Jones Wilshire US Airlines index has fallen 17% from its recent high in early February.
But where there is some money to be made, however, is in the energy stocks. Below is the chart of the ASX 200 Energy index, which has now broken out of its ascending triangle pattern. Now this breakout is confirmed, I get a possible upside count to 16,480 on the index, 7% above current levels.
This index only has 20 members, basically all the big names – Woodside, Oil Search, Caltex, etc. Now that the big names are breaking out, the small to mid-cap names will follow and there were quite a few constructive charts yesterday afternoon in the more speculative stocks for those traders that want to chase the momentum.
Before you go, read this article in the Wall Street Journal (see Bank of Canada warns on rising household debt). Canada and Australia have a lot of similarities apart from size: both are commodity-based economies and both have elevated housing markets. When I read this article I could not help but think of Australia.
If you have a spare 30 minutes you should listen to an interview Patrick Chovanec gave on China Radio International (click here), talking about the latest figures and trends for the Chinese economy: the drop in real estate, record bank profits, weak trade and PMI data, and persistent inflation.
Tom Lovell is an analyst and independent investor.