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

Reviewed this week

• Overview
  Same old, same old. More...
• Westfield Group (WDC)
  At a critical level. More...
• Mirvac Group (MGR)
  Continued oscillations within a range. More...
• Downer EDI (DOW)
  Improving. More...
• Macquarie Group (MQG)
  Continues to give glimpses of hope. More...
• Toll Holdings (TOL)
  Break of long-term support. More...
• OZ Minerals (OZL)
  Has done what I feared the larger resource stocks would do. 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

The Australian market was relatively flat last week, with the All Ords gaining just 0.4%. Midcap Resources, Telecommunications, and Property Trusts were amongst the best performers. Retailing and Consumer Durables were the worst sectors, down by 3.5% and 5% respectively. This weakness pushed these sectors to new correction lows.

Financials, Materials, and Resources were also relatively flat.

The latter remains above the combined support of its 200DMA, the uptrend from the May 2010 lows, and lateral support from the April 2010 high. This combination is obviously significant - a short-term Buy signal is in place, and the weekly stochastic is now testing the support of the 'signal line'. If the index fails to hold above current levels, there is potential for a more prolonged correction which could limit upside out until late in Q3 or early Q4.

(click image to enlarge)

At this stage I believe that this is the most likely outcome, but as always if the price action suggests otherwise, I will be guided by that.

It is interesting to note that other large mining stocks such as Xstrata and Anglo American are also testing significant support. This commonality gives added importance to current levels.

Before I go on, just a quick comment on the stochastic indicator in relation to the 'signal line' as mentioned above.

Regular readers will be aware that I watch the action of the stochastic as it tests the 'signal line' very closely, as it can be a very useful guide.

In an uptrend, I look to the support of the 'signal line' to mark the end of the correction - the uptrend should resume once the indicator bounces from the 'signal line'. If it pushes below the 'signal line' it implies continued weakness.

The opposite is true in a downtrend - in that instance, if the stock is undergoing a rally, the indicator might move up to the 'signal line' and then turn down - this implies that the rally is merely a countertrend rally. In this instance the action of the indicator suggests that the countertrend rally is nearing completion and the downtrend is about to resume.

So what is the best stochastic period to monitor?