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IG Markets Afternoon thoughts 4th August

Good afternoon,

Across Asia, regional markets are mixed as worries over the state of global growth continue to weigh on investors decision making. The Nikkei 225 is the best performer, up 0.9% after the Bank of Japan this morning intervened in the currency market to try and halt the yen’s rise, which is hurting the domestic economy. Elsewhere, the Shanghai Composite is 0.3% firmer while on the downside, the Hang Seng and Kospi are 0.2% and 0.4% weaker respectively.

In Australia, the ASX 200 is currently 02% weaker at 4320, just of its earlier session low of 4316. Once again the local market has been unable to garner any kind of buying support, with any intraday mini-bursts being quickly sold into – a tell tale sign of a market bereft of confidence. Looking at the market’s performance today, it is a mixed bag. The healthcare and industrial sectors are the two best percentage advancers, while the materials sector is also seeing modest buying interest. Unfortunately, these gains are being offset by heavier losses across the financial and energy sectors.

As we said above, there are simply no buyers. The huge amount of domestic and international concerns have sapped investors of any confidence whatsoever, which is translating into very little action on the bid side of the order book. We’re seeing a situation where the market is falling under its own weight due to a lack of buyers; any reasonable size sell order is moving the market lower to try and find enough buyers.

This morning’s sell off to eleven month lows came as some forced selling hit the market due to margin calls; as soon as they were done mid-morning, the market quickly spiked up 40 points. However, the foray into positive territory was short-lived as investors used the strength to sell into. Participants are very nervous and a lot of traders are looking to get out ahead of tomorrow night’s US employment figures.

Having said all of that, there were some very encouraging signs in the US last night that point towards some sort of a relief rally; probably not the start of a bull run but at least some sort of bounce. After plunging to lows of 1234, the S&P 500 rallied more than 2.1% to finish at 1260, 0.5% higher for the session. There were the classic signs of a selling climax as well, with volume on the S&P 500 40% higher than the three month average.

The classic ‘hammer’ candlestick pattern is a strong reversal signal, especially when accompanied by stronger than usual volume. After triggering a lot of stops and sell orders below the March lows of 1249, the market reversed aggressively, powered by a short covering rally as traders quickly reversed their short positions. Any signs of positive momentum tonight will probably see more traders climb board, triggering a short term rally.

Ben Potter
Market Strategist
IG Markets


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