US and Chinese data imposes compromise on investor attitudes

10.07 AEDT, Monday 11 March 2013

US and Chinese data imposes compromise on investor attitudes
By Ric Spooner (Chief Market Analyst, CMC Markets)

Investors initially contemplated a strong opening this morning following the US employment figure but early confidence will be tempered by the release of Chinese data over the weekend.

It’s too early to assume a weakening trend in China’s domestic economy. While retail sales growth was weaker than expected, the impact of the New Year means it’s prudent not to assume it’s a definite indication of a trend towards lower growth. However, investors will not be inclined to ignore these figures altogether. Lower figures in months to come would frank an outlook for softening domestic spending growth in response to higher food prices in China. Although it is likely that China will maintain overall growth rates of at least 7-7.5%, more measured growth like this would see some downgrade in the more optimistic forecasts for overall world growth.

Although the tone of the stock market is firm it is now at a short term watershed in technical terms. The S&P/ASX 200 index has not been able to move conclusively past the peak at 5106 it established on 20 February. Since then, it has traded around this peak with increased volatility. This price action is beginning to form into a wedge-like pattern.

It would take a clear move above last week’s high to indicate that the uptrend is resuming. The emerging wedge pattern is increasing the significance of short term support around 5045. The lower boundary of the wedge, long term trend line support and the 20 day moving average all coincide at around this level. A break below this support would indicate that the much awaited correction is underway.

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