Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Potential for more volatility

10.33 AEDT, Monday 25 February 2013

Potential for more volatility
By Ric Spooner (Chief Market Analyst, CMC Markets)

The rally in the Australian market since last November has been remarkable for its orderly progression and low volatility. However, investors are starting the new week conscious of the increasing risks that this behaviour pattern may change. Last Thursday’s high turnover, 2% decline provides an insight into the market’s potential for a sharp decline. There is now more potential for significant market moves in either direction.

The rally since November has been more about adjusting valuations to a lower risk; lower interest environment than improved earnings outlooks. The forward PE on the S&P/ASX 200 index has risen to about 15.25. Given the low yields on fixed interest investments, this is by no means an unreasonable multiple. On that basis there remains plenty of scope for market valuations to move even higher.

However, the forward PE is now well above the long term average. Thursday’s decline provides an insight into the scope for a sharp pullback if there is any change to the consensus outlook for a low rate; low risk environment.

The Italian election result and the outcome of Congressional negotiations on the automatic US budget cuts are the major risk events for this week. Both have the potential to influence consensus attitudes toward global risk. Australian markets are likely to remain relatively cautious before these events.

From a technical perspective, we begin the week with the uptrend intact. Thursday’s big drop was not enough to take us below the zone of support around the trend line that has defined the rally since November. Any break below the zone of support around 4973/4951 could indicate that a correction to this uptrend may finally be underway. This support is made up of the 20 day moving average and the early February peak. Last week’s high at 5106 represents initial, minor resistance.
http://www.cmcmarkets.com/


_________________________________________________

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Gareth Morgan: The Government’s Fresh Water Policy – Revisited

Fresh water quality is the latest area to be in the sights of Gareth Morgan and his research organisation The Morgan Foundation... They found that the fresh water policy was a bit murkier than the Environment Minister let on. More>>

ALSO:

Interest Rates: RBNZ Hikes OCR To 3.5%, ‘Period Of Assessment’ Now Needed

Reserve Bank governor Graeme Wheeler raised the official cash rate as expected, while signalling a pause in rate hikes to assess the impact of moves so far this year. The kiwi dollar sank after Wheeler said its strength was “unjustified” and that the currency could have “a significant fall.” More>>

ALSO:

Fonterra: Canpac Site 'Resize' To Focus More On Paediatrics

Fonterra is looking at realigning its packing operations at Canpac, in the Waikato, to focus more on paediatric nutritionals... The proposed changes could mean around 110 roles may not be required at the site which currently employs 330. More>>

ALSO:

Scoop Business: Postie Plus Brand Gets 2nd Chance With Well-Funded Pepkor

The Postie Plus brand is getting a new lease of life after South Africa’s Pepkor bought the failed retailer’s assets out of administration and said it will use its purchasing power to reduce costs of stock and fatten margins. More>>

ALSO:

Warming: Warming Signs From State Of Climate Report

Climate data from air, land, sea and ice in 2013 'reflect trends of a warming planet' -- says the latest State of the Climate report, launched by U.S. and New Zealand scientists. More>>

ALSO:

Scoop Business: Embrace Falling Home Affordability, Says NZIER

Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub. More>>

Productivity Commission: NZ Regulation Not Keeping Pace

New Zealand regulators often have to work with out-of-date legislation, quality checks are under strain, and regulatory workers need better training and development. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news