Global Market Sell-off Presents Bargains For the Brave
Stock markets around the world have sold-off heavily again this week, following the Japanese market’s plummet to its biggest losses since October 2008, triggered by last Friday’s earthquake and subsequent tsunami. The selling was sparked by fears of a catastrophic meltdown at the Fukushima Daiichi nuclear plant, which was hit by explosions in a number of reactors causing damage to nuclear rod cooling systems.
Elsewhere, European sovereign debt remained a concern, while geopolitical unrest spread in the Middle East and North Africa with violence increasing in Libya. Market volatility has again spiked this week as investors became nervous over all the negative news. Key markets around the world have now broken below their 50-day moving average support, with some now looking for support at their 200-day moving average levels.
The broad losses came as nuclear suppliers and producer companies were dumped because of major global governments announcing reviews of their nuclear energy policies and construction projects, in light of the Japanese disaster. April NYMEX crude oil futures remain above $US101 a barrel due to the potential for disruptions to supplies. The gold price backed off record levels but is still trading above $US1,400.
Many markets are testing their 200-day moving averages and next week will again prove pivotal for near-term momentum. Commodities are recovering from their sell-off earlier in the week.
Australian Market
Trading in the Australian market again has been dominated by investor sentiment from overseas. Mining and energy stocks have been particularly volatile due to the Japanese nuclear crisis, and financials have also been trading lower. The ASX All Ordinaries and the S&P/ASX 200 are trading below their 200-day moving averages.
US Markets
US markets closed higher overnight for the first time this week, helped by positive economic news on jobs and manufacturing and by activity from bargain hunters.
Overnight the Dow closed up 1.3% at 11,678, while in the broader market the S&P 500 index was up 1.3% at 1,274 and the tech-heavy Nasdaq ended up 0.7% at 2,642. The S&P 500 held below key support at 1275. 1225 is the next target.
European Markets
European markets again traded lower for the week and many are testing their 200-day moving averages for support near-term. Overnight European markets rallied, breaking a 6-session losing streak. The miners and energy stocks led the gains as commodities prices recovered.
The German market, which has been leading the recovery since 2009, continued to hold well below the rising channel that has been in place since July 2010. This is an ominous sign near-term.
Investor focus will remain on the devastation in Japan, the unrest in the Middle East and the European sovereign debt issues, and investors will be in search of over-sold stocks which represent bargains.
Overnight in London the FTSE 100 index closed up 1.7% (or 98 points) at 5,696, the German DAX was up 2.2% (or 143 points) at 6,656, while in France the CAC was up 2.4% (or 89 points) at 3,786.
Asian Markets
Asian markets have traded lower this week due to the Japanese disasters, but bargain hunters continue to step into these markets as opportunities arise. The Japanese market has slumped over 11 percent, on fears of a nuclear reactor meltdown. The Nikkei index is trading at its lowest level in 4 months, having its sharpest percentage loss since December 2008 at the height of the GFC.
Yesterday in China the SSE Composite closed down -1.1% at 3,034, while in Hong Kong the Hang Seng Index was down -1.8% at 22,678 and in Japan the Nikkei 225 Index was down -1.4% at 8,963.
Our View
Unless the issues in Japan and the Middle East can be resolved the S&P/ASX 200 index looks set to remain weak, selling pressure is likely to continue, and crude oil prices could remain at these elevated levels with investors continuing to trim their exposure to risk assets near-term.
The S&P/ASX 200 is currently trading at 4590, having broken through its key support level around 4700, which will likely act as resistance near-term. The focus for next week will again be on the Japanese disaster, the unrest in the Middle East and North Africa, European debt concerns and locally the ongoing carbon tax debate. Key levels for the index next week will be 4500 to 4700.
Investors need to use protection through options to hedge their long positions near-term. Also the global sell-off has been sparked by the view that global assets will need to be sold in order to repatriate funds to pay for the rebuilding in Japan, however to date this is yet to be confirmed. This has caused huge volatility in the currency markets which will ultimately drive equities prices, so watch out for any news in relation to this.
By Michael Hevern
Head of Research
Tags: Asian Markets, ASX, ASX News, Business News, European Markets, Japan, MDS Financial, Nikkei, Stock Market Analysis, Trader Dealer, trading, US Market wrap
