Next Stop 4500

The more data I see coming out of Australia the more I fear we may be heading towards a hard landing.

The number of home loans approved in March fell to a 10-year low.  Economists had expected a 2% rise and instead we got a 1.5% fall.

We all know by now that home prices are starting to fall in Australia.  It beggars belief that the perma-bulls in the property market refuse to accept that what happened in the US and Europe can happen here.

We are one of the most overvalued property markets in the world due to our negative gearing laws and a government that thinks it is good policy to throw taxpayer money at keeping the bubble afloat.

One of the greatest truisms of any market is that you can manipulate the price in the short term but in the end the market will always go where it needs to go.  I have very little doubt that where our property market needs to go is down.

SQM director Louis Christopher says ‘Melbourne is now experiencing a massive oversupply of real estate.  If this continues into the next quarter, then we are likely to see considerable price falls over and above our existing forecast.’

The recent bank results all showed a surprising spike in arrears.  Loans past 30 days due spiked higher than loans past 90 days due, showing things are getting worse by the day.

CBA experienced an 11% jump in the number of missed payments on housing loans in the March quarter.  ANZ and Westpac suffered similar results.

The number of companies entering insolvency in March reached a near-record high of just under 1,500 according to the corporate regulator.

Figures from the Australian Securities and Investments Commission show the number of company collapses reached 1,491 in March, versus 1,299 in February and 640 in January according to an article at

Employment figures out last week showed a surprise decline.  According to Bloomberg, last month’s decline in jobs ‘brings to 26,300 the number of net new positions created in the first four months of the year, the weakest January-through-April period of employment growth number since 1999.’

Retailers are really starting to feel the pinch from a strong Australian dollar driving sales offshore and consumers pulling in the purse strings.

I highly doubt the RBA is going to be able to raise rates two more times by the end of the year.  My guess is that as this unfolds over the year we are going to see the RBA cutting rates to stave off a complete collapse in the housing market.  But it will be too little too late.

America is now entering the sixth year of its housing downturn.  And prices are continuing to fall.  We are only at the very beginning of the slide here in Australia.  So ignore all of the property spruikers who tell you that now is the best time for buyers to step up and get a bargain.

There are no bargains to be had yet.  The bargains will be in four or five years when the dust has settled on the coming property price crash.

The stock market is also looking particularly ominous right here.  My free weekly market updates, which I have been releasing on YouTube, have been predicting the current fall in stocks and commodities.  To prove my point you can view my update from the 15th of April when the ASX 200 was trading near 4900 here.  In this video I give you an overview of my approach to analysing market price action and make a clear warning that the market was very high risk and that I expected a fall to at least 4700 and from there to 4500, if 4700 couldn’t hold.

Most people view technical analysis as some sort of voodoo.  I view technical analysis as a map of human psychology that you can use as a risk-management tool in your trading.  One of the best quotes I have read about technical analysis is that it is a windsock and not a crystal ball.

The herd will continue to make the same mistakes over and over and if you can understand why they make the mistakes that they do you can find great risk/reward entry points into stocks.

ASX 200 daily chart

Have a look closely at the above chart.  You can see quite clearly that the ASX 200 has been caught in a range between 4500-4900 since September 2009.  Yes, we have traded outside of that range on different occasions but the main point is that the gravitational pull of that range has been immense.

One of the cornerstones of my approach is to say that the midpoint of that range or 4700 is the Point of Control for all of the trading that has occurred over the past 20 months.

Have a look at the chart again.  The top arrows show that whenever the market has re-entered the 4500-4900 range after attempting to break out to the upside we have seen a quick move to the point of control at 4700.  Once the 4700 level has broken there was an even quicker move to the bottom of the range at 4500 (the bottom arrows).

Once again we are breaking below the point of control at 4700.  We have also broken below the 200-day moving average, which is one of the most important moving averages to follow.

My shorter-term trends have turned down and there is very little support below here until 4500.

I believe the FTSE and the S+P 500 are also teetering on the edge of returning to their major long-term distributions, which could see a sharp fall in the immediate future.

The US dollar has begun the squeeze that will be the necessary catalyst to see an unwinding of the carry trade and commodities appear to be making a long-term double top with the highs from 2008.

Continuous Commodity Index

Now is not the time to be a hero in the markets.  There are too many macroeconomic headwinds and too many technical warning signs that our stock market is heading into stormier weather.

Murray Dawes
Markets and Money Australia

Murray Dawes
Murray began his career on the Sydney Futures Exchange trading floor in 1993 with Swiss Banking Corporation (SBC). He spent a couple of years in the 3 and 10 year bond and option pits before moving on to the Share Price Index (SPI) futures and options pit. From there he became a broker with SBC specialising in SPI futures and options to institutional clients. After leaving SBC Murray continued his career in broking at Bankers Trust Australia. Then in 2001 Murray moved to Melbourne to work as a hedge fund trader for one of Australia’s wealthiest families. In 2003 he was ready to set up his own firm providing the same proprietary technical trading system to some of Australia’s boutique hedge funds. The success of Murray’s system led to him trading a $10 million account for a high net worth individual. This involved trading Australian and US futures and Australian stocks. Now Murray heads up the technical analysis desk for us passing on to readers some of his experience from 16 years of trading.
Murray Dawes

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3 Comments on "Next Stop 4500"

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Great little article. Growing risk to asset values out there. Time to be conservative with share and property positions.

Lauchlan Jr.
Clap Clap Clap Clap. You are a genius…I have had bigger birthday parties than your biggest account. When you get some real runs on the board and you have been in business longer than a decade maybe people will listen to you… If everyone listened to you – we would all either hang ourselves or pack up the caravan and head west, either of which means you are dead. I will bet you your biggest account that we do not see a similar result to the US or Europe in the Austrailan property market – funds to be held in… Read more »
Ha……ha….ha. 105% mortgage on 300k over 30 years because, ‘it doubles every 7-10 years’. Bwaahaaah! And, “it’s diffrent ‘ere”. Just a thought but I guess they could go back to their respective real estate agents and ask for their money back. Worth a try. Home debtor to realestate agent: “but you told me it will double every 7-10 years. We’ve been making payments 3 years now and it’s definitely going backwards, you know, negative. Plus, we canny find a buyer.” Real estate agent: “Don’t worry, trust me on this, by the time you pay it off it will be worth… Read more »
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