The Australian election looks to have delivered a ‘hung’ parliament after a 2.7% swing away from the government. Both major parties look like securing 72 or 73 seats with 4 or 5 independent candidates holding the balance of power.
The move by the incumbent Labor government to dump the previously elected Prime Minister Kevin Rudd in favour of Australia’s first (non-elected) female PM Julia Gillard appears to have back fired with a massive 9.5% swing against the government in Mr Rudd’s home state of Queensland.
Putting party politics aside, it appears that two major policies have split the Australian electorate. Both policies will have significant implications for investors. Interestingly, the ‘hottest’ issue of the 2007 election, the emission trading scheme and carbon tax, barley rated a mention by either party this time around.
This time around the big issues of the election were the:
- National Broadband Network (NBN) and the
- Resource Mining Tax
The big advantage of the NBN for both consumers and business is the increased speed and coverage. The disadvantage is that its Fibre-to-the-Node (or home) technology. With the explosion in IPhones, IPads and the like, more and more consumers, are looking for mobility.
Consumers want access to services no matter where they are. In other words they want mobility. Younger consumers see a fixed network as old technology and a waste of government funds.
The other NBN issue for investors that is the looming break-up’ of Australia’s largest telecommunications company – Telstra (ASX: TLS). There are sound arguments from both sides of the fence, for and against the breakup. But until it is clear what the future holds for Telstra, the uncertainty surrounding the telecommunications giant is bad news for investors.
Apart from the NBN, the other major issue for investors is the mining company resources tax. The tax has been watered down considerable from the one originally proposed and it is now seems to be more ‘friendly’ to the major miners like BHP-Billiton and Rio Tinto than the junior miners.
One thing is for certain the longer the outcome of the election takes the more uncertainty feeding into the resources sector. Foreign investors are concerned and the uncertainity will not be good for the resources sector in the short term. Financial markets dislike uncertainity and this tax is weighing heaviliy on Australia’s key growth driver.
Lets not forget that it was the resources sector that saved Australia from recession. China’s demand for Aussie minerals held strong whilst other ‘new’ economy sectors struggled.
So that’s the Aussie election in a nutshell, but what about the Australian stock market. Let’s take a look at the technicals of Australia’s leading market index – the All Ordinaries Index (also know as the All Ords).
General
The index bottomed in March 2009 after a 17 month bear market selloff. From Mar 09 to Apr 10 the index put on close to 1960 points or 63% before topping out at 5048. Since the market top in April the index has pulled back around 25%.
Monthly
Since April the index has gone on to set a lower low in May 10. The selloff in May was accompanied by heavier volume than was experienced during the bear market of 2007-09. Although the market has set a lower high it’s yet to confirm a new down trend by setting a lower low.
However, if we use a monthly line chart of the closing price we can see a lower high was set in July. Adding to the bearish sentiment, the All Ords has failed to trad above the 12 month moving average for the past four months.
Weekly
The All Ords completed a textbook example of a broadening top in mid-May when it broke down through the base in what was to become a failed break. Since moving back inside the broadening top pattern the All Ords has failed to close above the 50 week moving average or the mid-point of the pattern for the past thirteen weeks.
With the weekly chart caught in a sideways move for the last 13 weeks, the last two weekly peaks have been bearish engulfing candles set on volume that was higher than the volume leading up to the peaks. The bearish sentiment is being confirmed by the multiple-moving averages with the 10/20/30/50 week moving averages in a bearish formation.
The final week on the chart saw the All Ords completed a spinning top on high volume – this is screaming bearish, indecision and uncertainty as to the outcome of the election.
Daily
The daily chart set a lower high mid-week but has not yet set a lower low. The last two up-days were set on very high volume and a tight range with very little movement in the closes. This type of price action tends to indicate sellers are carefully heading for the exit.
All Ordinaries Direction
Stock market basics: Markets hate uncertainty and right now there is plenty of uncertainty with the distinct likelihood of a hung parliament that will take a couple of weeks to determine which party forms a minority government with the aid of the independents.
Most investors and market professionals are waiting to see who takes government and what the outcome of the NBN and resource tax will be. This coupled with overseas pressures in Europe and the U.S is creating a distinctly a bearish tone to the Aussie stock market.
All the evidence is pointing to a downward move in the short term with the low of 4200 to be tested. If the All Ords breaks below 4190 a sustained down move can be expected.
