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Australia: S&P/ASX 200 (.AXJO) Extending Losses as Virgin Australia enters voluntary administration

Australia: S&P/ASX 200 (.AXJO) Extending Losses as Virgin Australia enters voluntary administration

The Australian stock market is extending losses on Tuesday from the previous session following the weak cues overnight from Wall Street after crude oil futures turned negative for the first time ever. Investor sentiment was further dampened as Australia’s second biggest airline Virgin Australia entered voluntary administration.

The benchmark S&P/ASX 200 Index is declining 34.50 points or 0.64 percent to 5,318.50, after falling to a low of 5,308.10 earlier. The broader All Ordinaries Index is down 38.30 points or 0.71 percent to 5,376.40. Australian stocks closed notably lower on Monday.

Virgin Australia, which is struggling with a A$5 billion debt load and the coronavirus pandemic, has entered voluntary administration after failing to secure a A$1.4 billion lifeline from the Australian government. Shares of the airline, which employs 10,000 people and supports another 6,000 jobs indirectly, are in a trading halt.

Shayne Heffernan Trade Idea

“It’s a bitter pill for investors, but the Australian Prime Minister, Scott Morrison, is absolutely right not to bail out any one specific company amidst the COVID-19 pandemic.”

“If Australia starts going down that route, who decides which company is viable or not, and which will provide better returns on investment? Critically, would Qantas qualify for a similar financial injection too? Where do you draw the line?”

Why This Matters

Virgin Australia has entered voluntary administration, leaving the jobs of at least 15,000 airline workers and connected supply chain workers under a cloud.

In a statement to the ASX, the airline said the move would help “recapitalise the business” and ensure it emerged “in a stronger financial position on the other side of the COVID-19 crisis”.

The board of directors has appointed Deloitte’s Vaughan Strawbridge, John Greig, Sal Algeri and Richard Hughes as voluntary administrators of the company and a number of its subsidiaries.

Velocity Frequent Flyer, while owned by the Group, is a separate company and is not in administration.

The airline will continue to operate its scheduled international and domestic flights.

Australia’s troubled second airline, which saw its cash flow collapse because of tough coronavirus travel restrictions, is saddled with around $5 billion debt.

It has already stood down 80 per cent of its direct workforce and announced 1,000 redundancies in the past few weeks.

The airline called in the administrators after the Federal Government refused to step in with a $1.4 billion loan, despite repeated pleas from company management.

Virgin has also been in talks with the New South Wales and Queensland state governments, but is yet to secure support.

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

The projected upper bound is: 5,832.84.

The projected lower bound is: 4,721.51.

The projected closing price is: 5,277.18.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 21 white candles and 29 black candles for a net of 8 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 35.1660. This is not an overbought or oversold reading. The last signal was a sell 2 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 46.79. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 17 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 14. This is not a topping or bottoming area. The last signal was a sell 1 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 16 period(s) ago.

Rex Takasugi – TD Profile

S&P/ASX 200 closed down -41.600 at 5,311.400. Volume was 65% below average (consolidating) and Bollinger Bands were 11% wider than normal.

Open        High       Low         Close       Volume
5,353.000   5,353.000  5,307.700   5,311.400   308,822,080
Technical Outlook
Short Term:          Neutral
Intermediate Term:   Bullish
Long Term:           Bearish
Moving Averages:   10-period      50-period       200-period
Close:             5,365.63       5,864.79        6,512.09
Volatility:        39             66              36
Volume:            967,873,088    1,166,615,296   746,792,128

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

S&P/ASX 200 is currently 18.4% below its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect volume flowing into and out of .AXJO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .AXJO and have had this outlook for the last 5 periods.

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