Downward Movement Likely To Be Limited In Quiet Trading

10.03 AEDT, Monday 17 December 2012

Downward Movement Likely To Be Limited In Quiet Trading

By Ric Spooner (Chief Market Analyst, CMC Markets)

While US markets closed weaker on Friday, the Australian market is unlikely to lose much ground in early trading this morning. The recent sharp rally in China’s stock market, Friday’s lift in iron ore prices, and the prospect of more economic stimulus in Japan following the weekend’s elections will all be supportive for investor thinking on the resource sector today.

The US fiscal cliff will continue to be a constraining factor on share valuations at around current levels. Global markets have rallied in anticipation of a reasonable outcome to these negotiations. This leaves short term market risk to the downside, if the extent of fiscal drag turns out to be a bigger negative for the US economy in 2013 than most investors currently expect.

From a technical point of view, the S&P/ASX 200 index is in a well-established, medium term uptrend. Last Wednesday’s high represented a 6.2% rally from the mid November low. The consistency of the rally since then makes the market vulnerable to either a short term pull back or a period of sideways drift and consolidation. The 3 December peak at 4538 now represents near term support. A short term correction holding above this level would be consistent with a continuation of the strong trend we have enjoyed since mid-November. A deeper correction could see a test of the 50 day moving average at around 4482.

Web: http://www.cmcmarkets.com/

ENDS

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