The end of the financial year brings a sigh of relief to the institutional community as the score sheet on the 07/08 financial year is brought to a close and a new score card can begin from July 1st. The overall movement in the last 8 months has been sour bearish result with the long term investor licking their wounds and even those who have feasted on the 20% plus returns of the prior years will be keeping a keen eye if the music is about to stop and how many chairs are left at this party.
The confidence leading into the end of the financial year can be used as a barometer of what could be to come as the calendar year unfolds. The sentiment from the US and also domestically was weak in the last hours of trade in the last trading day of June and the first day in July. Optimistic starts by the bulls on low trading volumes were followed by falling prices on heavy volume as the professionals kicked in to gear. The overall feeling is uncertainty and thoughts lead to what the next financial year may bring.
The economies future
The simple fact is that in the domestic economy is we have some areas booming and others shrinking. The resource side to the economy and the states of Queensland and Western Australia seem to be immune from the contracting issues facing the other states in particular New South Wales. The banking and consumer elements of the economy have taken the brunt of the sell off with previous darlings in shock at the hand they have been dealt in 08. Now will be a time for the big players to close of the books of this financial year as quickly as they can and set programs into 08/09 for growth or preservation of existing revenues.
Taking a quick snapshot of the technical's of the broad ASX 200 market we see the price action returning to the lows of March around 5039. There are many standard technical "patterns" to watch one of the more popular would be Double bottoms or Double tops. These are places where the market is met by support or resistance and can provide reliable signals as to a market's direction. If the ASX 200 continues to fall to that level but finds "support" then we could see some signs or recovery to higher prices. A break below this level will be a concern for the technical traders and with concerns of the upcoming reporting season numbers could push the confidence levels lower and ultimately transfer to the market prices.
Optimistic outcomes
For any sort of positive outcomes in 08/09 the resources sector must continue to push out strong growth, without this sector dragging the economy by the nose there will be tougher times to come. A quick check of the other broad sectors confirms that the Finance sector (XFJ) is weak with a break of the March low in that sector on July 1st.Consumer discretionary (XDJ) is in free fall since May of this year and will be a good barometer to watch to confirm for revised confidence leading to an overall recovery.
It's hard to find any good news sectors outside Energy (XEJ) and Materials (XMJ) and Metals and Mining (XMM) with most if not all the other sectors treading water or down heavily. The fortunes of 08/09 will weigh heavily on the shoulders of these other sectors outside resources as they have seen the greatest falls and could be the source of the greatest recoveries if the fears of the global slowdown can be put aside and a stronger US economy can surface. The new financial year brings a new report card and every chance to improve on the last financial years returns. History will show us in due course if now is the point, where we can breathe a sigh of relief.
Good Trading
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