The Perfect Storm: Occasionally with the ASX200 you get a situation where there is very bad fundamental news coming from the markets on almost every front and yet the price movements don't reflect this. Whilst such opportunities don't come around too often, when they do it can provide great opportunities to those that combine technical and fundamental analysis to make trading decisions.
Lets look at last night. 1. We had commodities down 5-8% 2. Dow future down more than 1% well before the market opened and falling away further after the jobs report came through. 3. A terrible jobs report out of the US which showed the private sector shed 700,000 jobs last month. To put that in perspective the total US economy lost about 2 million jobs last year. If we were to annualise last nights report it would result in job losses in the viciniuty of 8-9 million per year. Now this alerts me that there is a strong possibility that job losses in the US are actually increasing at an alarming rate. 4. Several earnings warnings from major companies like Intel and Alcoa. My analysis of the current environment points to many more earnings warnings or profit yet to come through the system which will put upward pressure on PE ratios and thus increase the downward pressure on stock prices.
So in combining these facts I drew the conclusion that the US would have a very bad night. Despite this evidence our AUS200 cash price was only reflecting a fall of about 15-20 points for today late last night or a level of 3760-3775 (less than 0.5%).
My point is that whilst TA analysis is a great tool any trading system can be strengthed markedly by using fundamental analysis in combination with charts.
Clearly the AUS200 cash price was lagging the falls overseas and it presented a great trading opportunity with a high probability of success.
The only problem in having positions open with the AUS200 cash index is that you are exposed to substantial price manipulation, the likes of which we have seen during the Christmas and New year break, as well as the wide spreads which occur out of hours. Therefore very wide stops are needed to play the game.
Some of my best and most successful trading results have come from using a high level view of the fundamentals of the day combined with TA. Last night was certainly one such night and if we have more substantial falls in hte near term up until March then I am sure more opportunities will occur.
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