Market Comments 15/3/2011

I'm sure I don't need to tell you that today was a savage day on the Australian market. The All Ordinaries (XAO) down -2.13%. Breadth figures were bad. On the 50 Leaders, 49 stocks were down and one was flat. None were up. Some of the breadth figures that I collect privately are the worst since I started collecting data two years ago at the end of the Global Financial Crisis. The Small Ordinaries were down -3.5%. The punters were running for the hills.

So - that's one day.

We need to get some perspective on this. I've put up a weekly chart which provides such a perspective.

We've currently traversed 50% of the down trend which occurred back in April-May 2010 when the market was gripped by fears of a double-dip recession and the May "Flash Crash" on the American market.

That 50% retracement aligns with strong support set up in August and October 2010.

This is a likely place for a pause. But given that we have a recent historical precedent for double the current retracement, don't count on it stopping here. A pause is likely. That's about all we count on say at this stage.

The market is now clearly oversold - on a daily chart (see above). The Relative Strength is at about 20 about where it got to back in phase 1 of the three phase fall back in April/May 2010. Below 30 on a broad index like the XAO is most unusual.

Looking at the daily chart we can see that the current fall is about equal to Phase 3 in the Three Phase fall which occurred in April-May 2010.

We're still not oversold yet on a weekly chart. The Stochastic on the weekly chart is at 31.6. We may need to get down below 20 before we can be sure of an end to this carnage. And even then, it might take some time for the market to return to a long term bullish stance.

For the moment - can it get any worse? Of course it can. But, in the short term - unlikely.

Good luck

Red