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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
  Selling pressure for BHP? More...
• News Corporation (NWS)
  A break above resistance. More...
• Coca-Cola Amatil (CCL)
  A strong profile. More...
• SP AusNet (SPN)
  Price structure is positive. More...
• Spark Infrastructure (SKI)
  Waiting for a break of resistance. More...
• OZ Minerals (OZL)
  On the precipice. More...
• Regis Resources (RRL)
  A significant break. 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 All Ords broke marginally to the downside last week, penetrating the gentle uptrend from the October lows. The resource side of the market was once again the biggest drag on the index, with the ASX 200 Materials index falling by 4.4%. The ASX 200 Resources declined by 5% and the Small Resources by 6.6%. All three indices are now sitting on critical support which if broken, is likely to lead to a sharp decline.

BHP Billiton (BHP) is approaching the $34 level once again, and as that has supported the stock on numerous occasions since the October lows, a downside break would, in all likelihood, place significant selling pressure on the stock, creating risk of a decline in the vicinity of 10%. This is likely to be a quick spike lower, not a gradual decline. Rio Tinto (RIO) is in a similar situation.

The last time that BHP was sitting on support I suggested adding to exposure, albeit with a very tight stop-loss, but this time the situation appears more risky, with commodity prices under pressure. The situation in China is less compelling now, with the Shanghai 'A' Shares index stalling at resistance. This resistance is associated with the 200DMA and the March peak (2577), and with short-term momentum indicators in Sell mode a topside break appears unlikely in the near term. Australian resource stocks could not follow the Chinese market higher in April, so if China pauses, our resource stocks could come under further pressure.

The CRB index broke to the downside last week, and only a quick turnaround will improve the situation. That could come as a result of China's move to ease monetary policy on Saturday, but if prices continue to the downside over the next week, then the odds of a spike lower in the Materials index increases significantly. This comes at a time when the Banks are retreating from resistance so the outlook for the Australian market is not that rosy. And continued deterioration in the US won't help matters.

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I said last week, and on prior occasions, that the most likely scenario for the domestic market was a continuation of the range that has been in existence since late last year. This would give downside to about 4050. Whether or not there could be a spike lower to test last year's lows is unclear at this stage. It will likely depend on the extent of downside in the US equity market which remains vulnerable.