Article / 10 February 2016 at 2:12 GMT

Today's Trade: ASX200 tumbles into bear territory

Trading Desk / Saxo Capital Markets
  • Local market falls into bear market territory
  • Benchmark 10-year Japanese government bond yield goes negative
  • WTI and Brent off 5.7% and 7% to $29.28 and $30.59 respectively
  • AUD facing headwinds from both USD and commodity prices

By Saxo Capital Markets (Australia)

The local market opened flat but by just after midday AEDT had tumbled 2.1% to be below 4732.7 and well into bear market territory. 

 There is no obvious reason behind the latest market rout but a long list of factors have continued to weigh on markets. Photo: iStock


  • Major stock indices swung between losses and gains during the overnight session, as oil prices gave up early gains to trade down heavily and as weak overseas sentiment weighed markets down early. A steady close, however, limited the bleeding seen throughout the day as most major indices closed near the flatline.
  • The Dow industrials slipped 13 points, or less than 0.1%, to 16014, after falling close to 146 points earlier in the day. The Dow reached an intra-day high of 16132.07. The S&P 500 declined marginally and the Nasdaq Composite dropped 0.4%.
  • Stocks in Europe and Asia fell sharply. Stocks in Japan plunged more than 5%, as investors fled to safety. The yield on the benchmark 10-year Japanese government bond dropped into negative territory for the first time.
  • While analysts say there is no obvious reason behind the latest market rout, a long list of factors have continued to weigh on markets from the beginning of the year, including worsening global growth expectations as well as US economy growth, plunging oil prices and escalating anxieties over the financial sector.
  • The S&P 500’s index of energy companies fell 2.5% as crude futures settled lower. Anadarko Petroleum shares declined 7% to $37.24 after the oil company announced a cut to its dividend.
  • The technology sector in the S&P has dropped 5% in the last month.
  • Viacom Inc. shares dropped an enormous 21%, the largest fall in the S&P500, to $32.86 after the company reported lower than expected profits and revenue.
  • Coca-Cola shares rose late in the session, after the soda giant reported stronger-than-expected quarterly profits. Shares gained 1.5% to $43.30.
  • Wendy’s Co. shares fell 4.3% to $9.71 even after the fast-food company’s profit rose more than expected.
  • The CBOE Volatility Index (VIX) closed near 26.5.
  • The Stoxx Europe 600 fell 1.6%, bringing its losing streak to seven straight sessions and to the lowest level since October 2013.
  • The Dax closed 1.11% lower while the FTSE dropped 1%. The CAC performed worst, down 1.69%.
  • US oil futures fell 5.9% to $27.94 a barrel. Gold gained less than 0.1% to $1198.70 an ounce.
  • In currencies the euro rose 0.7% against the greenback to finish at $1.1270. The Australian dollar was weak against the greenback, after briefly breaking 0.7000 and reaching an intraday low of 0.6973, and had a small rally to finish down 16 pips at 0.7070.

Local markets

  • Bank of New York Australia ADR Index  up 4%. BHP Billiton ADR  down 4%. Rio Tinto ADR down 4%.
  • NOTE: A move below 4,786 will mean the index has fallen more than 20% from its April 27 high and is poised to enter bear market; ASX 200 closed yesterday at 4,832.076.
  • Spot gold traded with volatility around the $1,200 market in the past 24hrs. Safe haven buying has been met with profit taking after a great run. Of all the companies trading on the ASX, there are only three companies trading above the 20/50/200 daily moving averages and they are all goldies – NCM, RRL and EVN. NST has now his all-time highs after gaining 8%+. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil has come crashing down with volatility near seven-year highs. WTI and Brent lost 5.7% and 7% to $29.28 and $30.59 respectively. The IEA has come out with adjustments on their expectations for 2016. They have decreased their expectation of world demand and increased their expectation on supply from Opec. As a net affect the daily oversupply will go from 1.5mb to 1.75mb. Iran is now producing 3 million barrels a day with an extra 1 million b/d up its sleeve. It is this simple, some players will have to fall and it is this real concern that is weighing on the banks' share prices at the moment. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore markets were closed again yesterday. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals have been hit on weaker sentiment. Copper lost 2.6% at the same time Goldman Sachs came out cutting their outlook on copper. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Westpac February consumer confidence index due 1030 Sydney time
  • China’s GLAM offers over A$370m for S Kidman: Australian
  • AGL Energy (AGL): 1H results expected; NOTE: Feb. 4: AGL to exit natural gas assets, book A$640m charge
  • Boral (BLD): 1H results expected; NOTE: Adj. net income est. A$135.5m (2 analysts)
  • (CAR): 1H results expected; NOTE: Oct. 23: 1Q domestic trading solid; well positioned for continued growth
  • Cimic (CIM): FY results expected; NOTE: Adj. net income est. A$503.9m (9 analysts)
  • Commonwealth Bank (CBA): 1H results released – see trade set up below
  • Computershare (CPU): 1H results expected; NOTE: Adj. net income est. $140.8m (4 analysts)
  • OZ Minerals (OZL): FY results expected; NOTE: income est. A$133.9m (19 analysts)
  • National Australia Bank (NAB): Clydesdale Bank L-T IDRs cut to BBB+ from A at Fitch
  • Stockland (SGP): 1H results expected; NOTE: Oct. 26: Co. targets underlying FY EPS growth 6%-7.5%, FFO/share growth 8.5%-10%

Stock to watch: 1 new short trade

Commonwealth Bank (CBA) has today reported on its first-half profits for 2015-16 financial year. With the banks coming under selling pressure from global growth concerns and potential dividend cuts, increased capital requirement obligation from APRA and now corporate debt defaults from the mining/energy sector, CBA’s results will be closely scrutinised.

A few key fundamental points to highlight:
  • Net profit for H1 is up 2% to AUD 4.62bn (although there are more shareholders than last year after the recent capital raising in 2015), with cash profit up 4%.
  • Dividend payments have been kept at $1.98, which is the same as this time last year. With dividend growth in the banks coming to an end for the time, the market will be wondering if a cut is not on the agenda next time.
  • Currently Loan-Loss ratio is constant, although at this stage we’ve not seen many energy/mining companies collapse but pressure is mounting. In addition, low interest rates are keeping mortgage defaults at bay.
  • Should CBA maintain its dividends constant at $4.20 (H1 $1.98 and H2 $2.22) and shareholders are satisfied with a return of 5.75%, CBA’s fair value comes in at: $4.20/0.0575 = $73 (more or less at today’s price).

Trade set-up

There was a clear break on a Head and Shoulders formation pattern yesterday on CBA, which dropped the share price to close on a long-term uptrend which started in 2008 (see charts below). 

The closing price of CBA yesterday also coincides with a 25% Head and Shoulders extension. Given the better than expected earnings today (although dividends have been a disapointment) we feel that a retracement is likely given bank stocks were deeply oversold yesterday and as the stock would be supported by the uptrend line. 

A short opportunity would be attractive upon a retracement to its neckline at which point the share price should be met with resistance.

Sell: CBA.xasx

Entry: 75.00 limit

Target 1: 71.00 (50% head and shoulder extension)

Target 2: 66.50 (100% head and shoulder extension)

Stop loss: 77.00

CBA daily share price 
CBA weekly share price
NOTE: A short trade was entered on CBA.xasx in July 2015 at 85.81 and was stopped out upon trailing the stop loss to 77.70.


Broker upgrades and downgrades

  • Bank of Qld (BOQ): Cut to hold vs buy at Bell Potter
  • Bank of Qld (BOQ): Cut to hold vs buy at Deutsche Bank
  • Nufarm (NUF): Raised to outperform vs neutral at Credit Suisse
  • Rio Tinto (RIO): London-listed stock rated new underperform at RBC


AUDUSD appears to have made a huge false break below 0.70 handle as it reversed sharply higher above 0.7050. The US dollar extended losses and this is putting upward pressure on both EURUSD and AUDUSD. However, if we continue to see commodity prices decline, thus reducing overall risk appetite, AUDUSD is expected to depreciate. The resistance levels are 0.7077-0.7100 and the support level is at 0.6920.

AUDUSD daily chart


AUS200 looked weak from the open yesterday as the big four banks sold off aggressively. It has broken the January low of 4,819 and the downward momentum is expected to remain strong. 

Both copper and crude prices plunged together, therefore we are anticipating a further rise in volatilities in the very near term and the big mining stocks should weigh down AUS200 today. The interim resistance level is 4,850 and the support level is 4,770, which is likely to be tested soon.

AUS200.I chart


The US500 appears to have formed a Head and Shoulders pattern after it rebounded up to 50% retracement level 1,947 in early February. The neckline can be drawn at around 1,850 and we are anticipating a clear break-out in the near term as volatilities are returning as both copper and crude oil made some significant sell-off overnight. 

Although Janet Yellen’s testimony over the next two days could be a short-term risk for the shorts, we believe US500 is due for a material decline. We are seeing signs of fear as gold and US Treasuries are rallying while the US dollar is under further selling pressure.

Sell: US500.I

Entry: Limit 1,860

Target 1: 1,811

Target 2: 1,734

Target 3: 1,606

Stop loss: 1,905

US500.I daily chart

Source: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
Source: all charts Saxo Bank. Create your own charts with SaxoTrader; click here to learn more

– Edited by Susan McDonald

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch its daily morning call on Periscope at 0945: #SaxoAPAC.


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