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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
  Risk is skewed to the downside. More...
• Telstra (TLS)
  Looking for some guidance. More...
• Rio Tinto (RIO)
  A 15% decline over the past couple of weeks. More...
• Wesfarmers (WES)
  Back within the downtrend. More...
• Westpac (WBC)
  An 18% decline since late October. More...
• Mesoblast (MSB)
  Uptrend under threat. More...
• Invocare (IVC)
  Low-risk opportunity. 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

Last week was another nasty one for global equity markets. More than half of the world markets that I track regularly declined by more than 4%. Belgium, Greece, and Japan broke to new 2011 lows. Spain, the Netherlands, Italy, Sweden, France, and China are hovering just above their September/October lows.

Commodities were also weak as the US dollar continued its advance. The CRB index remains within the downtrend from the April peak. Grains remain weak, base metals are mixed.

Oil is firm, which is the last thing we want.

Gold is now approaching the 2008 uptrend. As I said a few weeks ago, although the trend for gold remains positive, I don't think it will post any significant gains until platinum and palladium break above the overhead resistance which was formed when prices broke down in September. This is a positive seasonal time for gold, but seasonality is a secondary input and will be overridden by the mood of the market. With the US dollar showing no signs of weakness, commodity prices are likely to remain under pressure.

Speaking of the US dollar, the Dollar index gained 2% last week taking it to within striking distance of the early October highs. These highs should act as resistance and will be instructive in assessing the outlook for global equity markets.

If the dollar takes out those highs (0.8022) then we can expect continued downside pressure on the equity market. Unfortunately at this stage the Dollar index, although overbought in the short-term, appears more robust than it was in October. Not good news.

As far as the US T-Bond/S&P 500 ratio is concerned, it is approaching the early October highs. Difficult at this stage to say whether or not those highs will be overcome, but I would suggest that if they were, in conjunction with a topside break in the US dollar, then we could see another significant decline in global equities.

(click image to enlarge)

At this stage the jury is still out, but by the look of things it appears that risk is skewed to the downside. There is no evidence to suggest that a sustainable reversal is imminent. Admittedly equities are oversold, particularly in Europe, but oversold conditions can last for quite some time.

In Australia, the All Ords broke back below the April downtrend and back below the 56DMA. This puts it at risk of a test of the October lows at 3905.