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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
  An important week. More...
• Resolute (RSG)
  A medium-term low. More...
• Perseus Mining (PRU)
  Risk is clearly defined. More...
• Qube Logistics (QUB)
  An attractive profile. More...
• Leighton Holdings (LEI)
  A tradeable rally. More...
• Westfield Group (WDC)
  Risk is increasing. More...
• GPT Group (GPT)
  Lock in some profits. 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 potential for a medium-term peak in late August remains. But that view will be challenged in the near term as the equity markets are likely to look positive going into that peak.

Let's have a quick review on the reasons why I believe the US market is topping, acknowledging that if it retreats, our market will face another headwind.

The Dow theory non-confirmation

This occurred earlier in the year and remains in place.

These non-confirmations occur when either the Dow Transports or the Dow Industrials record a new high or low (within the current cycle), but that new high or low is not confirmed by the other index.

These are not immediate Sell signals but they do have a reliable track record in suggesting that all is not well. Similar non-confirmations have occurred on a number of occasions over the past few years – these are highlighted in the 7 August report.

The "rising wedge" on the S&P 500

This was spoken about last week. Briefly, this is viewed as a bearish pattern and is often a sign of exhaustion, with price showing less conviction as the rally extends.

As noted last week, this pattern is open to interpretation and there is a chance that price will push beyond the apex of the wedge. But as the Dow Industrials and the Nasdaq are approaching significant resistance (their 2012 highs), we need to take the wedge seriously.

The VIX

We also looked at the VIX in the last report, so just a quick comment this week.

The index broke a major support level last week. That support has been associated with some significant peaks in the equity market, as outlined last week.

The break of support could mean we are moving into a different environment, similar to the mid-1990s and the period between 2005 and 2007 as the US equity market recovered from the last bear market.

But given the other concerns, and the tentative nature of the break, I wouldn't bet on it at this stage.

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And what about the US dollar and the US T-Bonds?

As noted in recent reports, T-Bonds are retreating from a major resistance level and the path of least resistance is now to the downside.

But as T-Bonds have risen as equity markets have come under pressure, doesn't this mean that risk in equities is shifting to the upside? Yes, if we are looking at recent history. But that has not always been the case.

The positive thing for equity markets at this time is the fact the US T-Bond/S&P 500 ratio is still trending lower, after registering a medium-term peak in early June. This suggests there is still some short-term upside in the equity market.

As for the US dollar, the US Dollar Index remains below resistance but is holding up relatively well, and if we look at the action against a wide range of currencies, the US dollar appears relatively robust.

I think risk is to the upside here. This has negative implications for our dollar. This would be good for our economy, but unfortunately, it could be a sign risk assets are going to come under pressure again.

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And our market?

There were some solid performances last week, with the ASX 200 posting one of its better performances this year. The index gained 2.2 per cent. Healthcare was one of biggest winners with a 5.6 per cent advance.

Consumer Staples was also strong (+5.2 per cent), as was Retailing (+5 per cent). Small Resources gained 3.8 per cent.

The Financials also rose, up 1.5 per cent, and the Banks, with the exception of National Australia Bank (NAB), posted strong gains. Materials lagged, once again, as the Chinese equity market lost ground.

The ASX 20 and 50 Leaders hit the resistance that was discussed in the last couple of reports. The ASX 200 and the All Ords sit approximately 1.5 per cent to 2.5 per cent below their major resistance levels.

With the key US indices – the Dow, the S&P 500 and the Nasdaq – also facing critical resistance, this will be an important week. We could see a topside break, but at this stage I would be wary of it.