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Regardless of which charts I consult for a near-term market outlook– equities or commodities – the outlook is far from diabolical. Below are charts for the Australian All Ordinaries, the Dow and the FTSE, together a reasonable cross-section of what is going on in world equities:
XAO:
click to enlarge
DOW:
click to enlarge
FTSE:
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And a similar picture applies for most commodities.
All of these charts suggest that the leg down is not yet complete. As I write, a small rally is taking place – but that’s all it is – and the technicals and fundamentals ‘perception’ points to further easing. And that is all it will be in the near term (an easing rather than markets failing apart) as the main capitulation occurred in late July/early August.
In the FTSE chart below I have highlighted in yellow the consolidation phase now taking place and the low of March, 2009:
click to enlarge
This current sideways consolidation presents a rather healthy outlook – again for the near term – and is a much better characteristic than what took place in March, 2009. But the FTSE, like most equity markets, had a robust move from the low of March, 2009 and while there are many analysts who are saying equities are cheap, I am not convinced such an outlook is well-founded. They may have a point based on current earnings but future earnings are not certain. If economic uncertainty continues, analysts may start to factor in lower earnings and lighten their equity loads accordingly.
Long-term forecasting is always fraught but more and more analysts are questioning what 2012 may bring. We could see an escalation of the European debt crisis, a double-dip recession in the USA and a significant at easing in Chinese GDP. And if two or all of these happen, markets could test the March, 2009 lows.
In summary, the short-term outlook is not diabolical but the one-year outlook is still unclear.
Enjoy the ride
Tom Scollon
Chief Analyst
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