Page 1 of 8

The views expressed in this report are those of Lesley Beath and may differ from Morningstar's views.

Reviewed this week

• Overview
  A mixed picture. More...
• AMP (AMP)
  On support. More...
• Foster's (FGL)
  A bounce? More...
• News Corporation (NWS)
  There is still some risk. More...
• CSL (CSL)
  Testing the 200DMA. More...
• Stockland (SGP)
  On critical support. More...
• Toll Holdings (TOL)
  Lack of positive action. More...

Please note: before making an investment decision, Morningstar recommends you read the fundamental research available on these stocks.

Disclaimer: To the extent that any content in this report constitutes advice, it is general advice that has been prepared by Lesley Beath without taking into account the particular investment objectives, financial situation and particular needs of any individual investors. If necessary, you should consult with a licensed investment adviser or dealer in securities such as a stockbroker before making an investment decision. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

Overview

In the last report we looked at the rising Australian dollar and asked the question 'how high can the AUD go?'

There were few clues to suggest that a reversal was imminent, but it was noted that a Fibonacci 61.8% retracement of the entire fall from the historical high in December 1973 to the all-time low in April 2001, was $1.10. As this represented a psychological 'round number' resistance as well, there was a chance that 'it could spark some profit taking, leading to a reversal'.

Silver was also examined, with the following comment 'this market has moved into an extremely high-risk zone and is setting itself up for a significant decline. A pullback here would not have obvious negative implications for the Australian market, but it could represent a move out of higher-risk assets and this in turn could signal a top in the Australian dollar'.

Well, silver's decline last week was dramatic (-27%), as pullbacks in silver historically are. This fed into other commodity markets, most notably oil, which ended the week lower by almost 15% (WTI). It is highly likely that a medium-term peak has been registered.

A peak in the oil price, even though it may only be of medium-term duration, should remove a possible threat to global equity markets. But the big question now is whether or not the recent sell-off in commodity markets will be seen as the beginning of a move out of risk assets, which will subsequently flow through to equities, or whether equity markets will view this as a positive development.

That is a difficult one to answer. There is obviously a lot happening at the moment, and there are a number of cross currents.

On the positive side, price action in the US market looks constructive. As discussed in last week's report, the S&P recently broke out of an 'inverse head and shoulders continuation' pattern and although last week's decline has dented its validity, it has not negated it.

In addition the S&P Banks index is holding above its 200DMA and the chart profile of a large number of stocks remains positive.

In China, the Shanghai Composite is in close proximity to its 200DMA and as this coincides with the trendline joining the July 2010 and January 2011 lows, this is a potential turning point. Hong Kong's Hang Seng Index is also testing the support of its 200DMA, as is the Australian market. Copper and nickel are in the same position. On the other hand, there are plenty of reasons to feel cautious. Sections of the US market are stalling as they test significant resistance - the Dow Transports and the Nasdaq Composite are in close vicinity to their 2007 peaks, as is the Russel 2000.