Stocks take breather after five-day rally

THE sharemarket finished lower, pulling back from a week-long rally but closing well above the day's low.

By InvestSMART · 13 Oct 2011

By InvestSMART ·
13 Oct 2011

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THE sharemarket finished lower, pulling back from a week-long rally but closing well above the day's low.

The market opened weaker, and continued to fall until the early afternoon, following dramatic falls overnight on overseas metals markets and a poor start to the US reporting season.

The S&P/ASX 200 Index closed with a loss of

23.3 points, or 0.55 per cent 4204.3 after being down

60 points.

IG Markets analyst Cameron Peacock said the market was due for a pullback after rallying strongly since Wednesday last week, but he believed it wanted to move higher.

"Throughout the day, I noticed that every time we saw a bit of weakness, we'd gravitate back to the 4200 level," he said.

"That tells me that there is a lot of conviction in the rally which we've seen over the last week. Certainly we've got the catalyst for a sustained rally to year end."

Energy stocks fell the most, down 1.1 per cent, despite oil prices rising for the fifth straight session in New York.

Woodside Petroleum fell 23? to $35.36 while Santos lost 17?, or 1.3 per cent, to $12.49 and Oil Search shed 11? to $5.95.

City Index chief analyst Peter Esho said uranium stocks had helped buoy the materials sector in recent sessions on speculation the industry was consolidating.

He said they were now dragging the sector down after uranium producer Energy Resources Australia announced plans to raise $500 million with the issue of new shares at a big discount. ERA shares were in a trading halt yesterday.

BHP Billiton fell 31? to $37.08. The company has approved $US1.2 billion in pre-commitment capital for the first phase of the Olympic Dam mine expansion in South Australia.

Fellow miner Rio Tinto lost 54? to close at $67.46.

Fortescue Metals dropped 9?, or 1.9 per cent, to $4.72.

Consumer staples and consumer discretionary stocks were among the only sectors to gain ground, rising 0.12 and 0.23 per cent respectively.

Woolworths rose 30? to $24.92.

Consumer electronics chain JB Hi-Fi put on 49?, or 3.5 per cent, to $14.36, recovering some of its earlier losses after telling shareholders at its annual meeting that comparable-store sales for the first quarter of the financial year were down 3.5 per cent on the same period last year.

Tabcorp Holdings was the best performer on the same index, after it reported that first-quarter revenue had risen 2.7 per cent from the same period last year. Its shares jumped 11? to $2.71.

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Frequently Asked Questions about this Article…

Why did the ASX pull back after a five-day rally?

The S&P/ASX 200 closed lower after a week-long rally, slipping 23.3 points (0.55%) to 4,204.3 after earlier being down about 60 points. The market opened weaker and fell into the early afternoon following dramatic overnight falls in overseas metals markets and a poor start to the US reporting season, prompting a normal short-term pullback.

Is the pullback on the S&P/ASX 200 a sign the rally is over?

Article commentary from IG Markets analyst Cameron Peacock suggests it was a routine pullback rather than the end of the rally. He noted the market repeatedly found support around the 4,200 level, which he interpreted as conviction behind the recent rally and a potential catalyst for a sustained move higher into year end.

How did energy stocks perform and why did they fall despite rising oil prices?

Energy stocks were the worst-performing sector on the day, down about 1.1% overall, even though oil prices in New York rose for a fifth straight session. Individual energy names mentioned included Woodside (closing at $35.36), Santos (down 1.3% to $12.49) and Oil Search (closing at $5.95). The article notes the divergence but doesn’t give a specific local cause beyond broader market moves.

What happened with major miners like BHP, Rio Tinto and Fortescue on the pullback day?

Several large miners fell: BHP Billiton closed at $37.08 and Rio Tinto closed at $67.46, while Fortescue Metals dropped to $4.72. The article also highlights that BHP approved US$1.2 billion in pre-commitment capital for the first phase of the Olympic Dam expansion in South Australia, which featured in market coverage.

Why are uranium stocks affecting the materials sector?

City Index chief analyst Peter Esho said uranium stocks had recently buoyed the materials sector amid speculation of industry consolidation. However, the sector was being dragged lower after uranium producer Energy Resources Australia (ERA) announced plans to raise $500 million by issuing new shares at a significant discount; ERA shares were in a trading halt at the time.

Which consumer stocks outperformed and what did they report?

Consumer staples and consumer discretionary were among the few sectors to gain (up about 0.12% and 0.23% respectively). Woolworths rose to $24.92. JB Hi‑Fi recovered some losses, rising 3.5% to $14.36 after telling shareholders that comparable-store sales for the first quarter were down 3.5% year on year.

Why did Tabcorp shares jump and how did the company perform?

Tabcorp was the best performer on the S&P/ASX 200 after reporting first-quarter revenue up 2.7% compared with the same period last year. Following that update its shares jumped to $2.71, according to the article.

What should everyday investors watch after this session?

Based on the article, investors should monitor key influences like the US reporting season, overseas metals markets, oil price trends, and company-specific news (for example ERA’s capital raise and BHP’s Olympic Dam commitment). Also watch technical levels mentioned by analysts, such as support around the 4,200 level on the S&P/ASX 200, which the article said markets repeatedly returned to during the session.