ASX week ahead 21 December 2009: With earnings season over and guidance announcements quieting through the year’s end, negative sentiment from the Greek financial tragedy and worries the recovery is stalling limited the week’s gains to 0.3%.

Possible shakers next week include:

Gold and other mining and metal related stocks. Should the U.S. dollar continue to strengthen on investor risk aversion, caused by Eurozone sovereign debt concerns, the price of gold could fall more than the 2.6% it lost Friday. That would weigh on names such as Lihir Gold (LGL), which fell 4.6% Friday, Newcrest Mining (NCM, down 3.0%), BHP Billiton (BHP, down 2.0%), and Rio Tinto (RIO, also down). In all, the materials and resources sector lost 1.8%, and could be hit again should gold remain volatile.

Energy-related names are equally vulnerable, not only on the question of USD appreciation but also on the OPEC meeting scheduled for 22 December although there’s no expectation of any change in production quotas. General Middle Eastern jitters are also simmering more strongly than normal, not helped by a small unit of Iranian troops that crossed the border, seized an Iraqi oil well, and as yet have refused to leave. Such jitters could overpower the stronger USD and cause energy prices to surge, further boosting such names as Woodside Petroleum (WPL, up 0.54% Friday), coal-producer Energy Resources (ERA, up 1.9%), and integrated oil and gas name Origin Energy (ORG, up 0.12%).

Meanwhile, the Dow Jones Australian Index (DJAU) continues to trade above its bullish trendline, but several weeks of consolidation have brought the price action steadily nearer that line and formed a short-term triangle. A break above the triangle’s upper boundary would of course signal a buy, but the bullish trendline would be more secure were the price action to touch and respect it first, as shown on the chart, below:

Since the previous analysis, AMP Limited (AMP) touched and bounced off its bullish trendline on 10 November. In this instance, several weeks of consolidation have formed a head and shoulders pattern, with its most recent “shoulder” touching the trendline on 16 December, as shown on the chart, below:

AMP opened higher on 17 December, increasing the likelihood of renewing the bullish trend and signalling a buy. The first price target is the top of the “head” at 7.00, with the possibility of further gains beyond that level.

technical analysis by Craig Liles

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