Posts Tagged ‘S&P 500’

How Understanding Volatility Can Improve Your Trading

Friday, November 11th, 2011

The markets have certainly been volatile lately. This is a comment that you may hear on a regular basis and it is often used to describe a share or market when it falls sharply, but what does it really mean? And more importantly, how can we use an understanding of volatility to improve our trading?

Volatility is the fluctuation in share price as measured over a period of time. If one share moves in a range of 20 cents in a week and another share moves in a range of $1.00 in a week, this would be considered a more volatile share. Note that this says nothing about the direction of the movement, just the range of movement. This is one way to measure volatility and there are many other ways to measure it as well.

The average true range (ATR) is a measure of how volatile a share is on a daily basis. The true range is the movement from the high of the day to the low of the day including any gaps that may occur. The average true range is the true range, averaged out over a number of time periods. In Computershare, shown in the chart below, the ATR(10) varies from a low of 10 cents to a high of more than 30 cents. A spike in the ATR has occurred recently following the announcement that Computershare has gained approval to take over a US based share registry. Looking closely at the chart you will see that when the volatility spikes it can be a sign that the share is about to reverse direction as it did in May and August this year, but the reversal was slower coming in January.

Understanding Volatility

Statistically speaking the range can be defined by the standard deviation, which is the range required to contain a certain percentage of price movement. 99% of price movement is contained within 2 standard deviations of the current price, so only in very rare cases will the price move beyond 2 standard deviations. Bollinger Bands display two bands that are 2 standard deviations from the current price as shown on the chart below. When the bands tighten up the volatility is low and when the bands widen out volatility has increased. As you can see in the chart below volatility has increased sharply following the announcement. From a trading perspective, when the share price breaks outside the band then expect a reversal as can be seen in August, September and October and again recently.

Using Bollinger Bands when analysing volatility

While these measures can easily be applied to an individual share there is a more sophisticated way to look at volatility which is more informative than a simple mathematical calculation. The volatility index, known more widely as the VIX, measures the premium that is being paid to purchase options on the S&P 500 index. To correctly price options it is necessary to take into account the volatility of the underlying market. If option prices spike then it is a sign of an increase in volatility in the market. In Market Analyser the volatility index is accessed by the code .VIX and the underlying index is the S&P 500 .INX. Both of these can be displayed on the same chart using the Overlay security function.

The Volatility Index VIX

The VIX is shown in pink on the chart overlayed on the S&P 500. Volatility has certainly been higher during the last 4 months than in the few months preceding it based on the VIX. Note the turning points in the index often coincide with the turning points in the VIX. Once the index reaches an extreme a reversal is imminent. High readings in the VIX correspond with points where the market turns higher and low readings in the VIX can signal sharp drops.

Using these tools you can measure whether the market is volatile right now and also use this knowledge to assist in identifying turning points in the share or market you are following.

By Jeff Cartridge
Education Manager

Test this strategy for yourself! Download a free trial of the Market Analyser software here.

Computershare was recommended as a buy by MDS Research Team at the start of November. You too can get advantage of our buy and sell recommendations on ASX listed companies by registering for a free trial of MDS Financial Research.

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Stock Market Analysis: Markets Plunge On Greek Default Concerns

Tuesday, October 4th, 2011

* US stock markets have begun the final quarter of the year with yet anonther selling spree.
* European stock markets closed sharply lower again overnight, with the banks again among the worst decliners, as Greek authorities announced that the country cannot meet its deficit-reduction targets this year, raising concerns that a default could come sooner rather than later.
* Asian stock markets end sharply lower yesterday, due to rising concerns over the euro-zone debt crisis and global economic growth, while concerns that Chinese non-performing loans may rise sparked a selloff in Hong Kong shares.
* Commodities prices traded sharply lower, as Gold prices rose to $US1,650 and while crude-oil closed down around $US76.

The SPI Futures is trading around the key pivot level of 3850, ending down -1.2% (or -46 points) at 3,842. The key levels for our index today are 3800 to 3950.

Aussie stocks are expected to sell down again today, following on from the negative leads from the US and Europe. Commodities sold off again overnight, which will add to the pressure on our miners. The RBA is expected to leave rates on hold at 4.75%.

See below for ASX listed companies in the news today.

Economics News Today

* RBA Interest Rate Decision

United States Markets

US stock markets have begun the final quarter of the year with yet anonther selling spree. This latest bout of selling was triggered by news that a Greek default may be just around the corner.

The Dow Jones Index closed near its lows for the year. In the broader market the S&P 500 stock index slumped over -2% and closed at its lows for 2011, while the tech-heavy Nasdaq Composite plunged -2.5%. All 10 of the S&P index sectors sold-off led by the financials and energy sectors, but most other sectors were down over -2%.

Better-than-expected US ISM manufacturing data for September and construction spending for August did little to help sentiment, as the three major indices are now down almost 20% from their 2011 highs, below which is considered bear-market teritory. The selling was triggered as Greece announced that it would miss its deficit targets this year. Those targets were considered a prerequisite to qualify for their next round of the bailout rescue package.

All ten company groups that make up the S&P index traded generally sharply lower: Industrials were down -2.8%, Materials were down -2.8%, the Energy sector was down -3.4%, the Financials sector was down -4.5%, Consumer Staples were down -2.9%, while the Technology sector was down -2.3%.

The Dow Jones closed down -2.4% (or -258 points) at 10,655, the S&P 500 index closed down -2.9% (or -32 points) at 1,099, the Nasdaq ended down -3.3% (or -80 points) at 2,2335, and the smaller cap Russell 2000 was down -4.3%.

European Markets

European stock markets closed sharply lower again overnight, with the banks again among the worst decliners as Greek authorities announced that the country cannot meet its deficit-reduction targets this year, raising concerns that a default could come sooner rather than later. The Stoxx Europe 600 ended down -1.1%, year-to-date the index is now down -18.9%.

European finance ministers met in Luxembourg overnight to discuss the Greek reform which is considered a prerequisite for Greece to avoid a near-term default. Banks led the decliners as BNP Paribas fell -4.6% and Soc Gen slid -5.2% in France and in Germany the Commerzbank slumped -7.3% and ING Groep sank -5.2%.

In London the FTSE 100 closed down, just above 5070, while in Germany the DAX slumped -2.3%. This was despite the UK PMI manufacturing showing a surprising recovery in September, but the eurozone PMI data was weak, hitting a 25-month low of 48.5.

The FTSE 100 index finished down -1.0% (or -53 points) 5,075, the German DAX was down -2.3% (or -125 points) at 5,367, while in France the CAC was down -1.9% (or -55 points) at 2,927.

Asian Markets

Asian stock markets ended sharply lower yesterday, due to rising concerns over the euro-zone debt crisis and global economic growth, while concerns that Chinese non-performing loans may rise sparked a selloff in Hong Kong shares.

In Japan the Nikkei Stock Index fell -1.8%, as exporters sold down heavily, despite the BoJ tankan survey showing Japanese business sentiment turned positive in the third quarter as companies restored supply chains hit by the March natural distastes. In Hong Kong the Hang Seng Index shed 4.4%, to end at 28-month lows. Chinese banks led the downturn due to concerns over non-performing loans.

In China the SSE Composite closed down -0.3% (or -6 points) at 2,359, while in Hong Kong the Hang Seng Index was down -4.4% (or -770 points) at 16,822 and in Japan the Nikkei 225 Index was up 1.0% (or 86 points) at 8701. The South Korean KOSPI closed flat for the session, while the Indian market was down -1.8%.

Commodities

The Dollar Index was higher at 79.59 on a lower Euro, while the Australian Dollar last traded lower at 95.26. Commodities prices were sharply lower.

For the session the benchmark crude NYMEX for December delivery was down -3.1% (or $US2.44) to settle at $US76.69. Copper prices are finding a support level as Copper for December delivery was down -0.2% (or -0.5 cents) at $US3.0955. December gold was up 1.9% (or $US30.00) at $US1,650.40.

ASX News Today

ABY – Copper miner Aditya Birla has been fined by a Queensland court for having too much water at its Mt Gordon mine in the Mt Isa region.

ANZ – Australia’s largest class action was back in court on Monday, in what lawyers describe as a major step in the case against ANZ bank fees.

AQA – Aquila Resources has entered into a 12-month $250 million corporate facility agreement with the National Australia and the Commonwealth banks for the provision of corporate cash advance facilities totalling $250 million.

CSL – CSL the pharmaceutical company says it has addressed the majority of manufacturing flaws highlighted by the US Food and Drug Administration (FDA), and remaining concerns are currently being resolved.

ELD – Elders has started offloading its struggling forestry business, blaming weak woodfibre demand and poor prices.

FMG – Fortescue Metals Group has had its highest level of quarterly shipments in the three months since June.

LEI – Workers have been sent home from Brisbane’s Airport Link tunnel project after construction was stopped as a mark of respect to an employee who died following an on-site accident.

NAB – National Bank insists it remains focussed on growing its UK business after Moody’s downgraded the ratings on NAB’s Clydesdale Bank due to speculation it would be sold off.

NEC – Northern Energy say a financing package for the first stage of the Wiggins Island coal export terminal in Queensland has been completed, project participant Northern Energy Corporation says.

NUF – Nufarm the agricultural chemicals supplier is well placed to grow its operating profit in fiscal 2012 as it continues to diversify its product portfolio away from the weedkiller glyphosate.

NWS – The Australian Council of Superannuation Investors (ACSI) calls on member superannuation funds invested in News Corporation to recommend against the re-election of a number of executive directors in the upcoming annual meeting.

PDN – Paladin Energy, which owns the producing Langer Heinrich uranium mine in Namibia, has completed a $68.2 million placement of shares with institutional and accredited investors at $1.20/share, or an 8.4% discount.

QAN – Qantas faced delays at airports around the country over the weekend as Qantas baggage handlers and ground staff walked off the job for an hour.

RIO – The Foreign Investment Review Board (FIRB) has approved a plan by Rio Tinto and Japan’s Mitsubishi to mop up the shares in coal miner Coal & Allied Industries that they don’t already own.

SDL – Sundance Resources has accepted an improved takeover bid by the Chinese Hanlong Mining, valuing the iron ore explorer at $1.65 billion, according to people familiar with the deal.

WES – Wesfarmers announced it will sell its Premier Coal business to Chinese-owned Yancoal Australia for $296.8 million.

Local Corporate Reporting

Range Resources (RRS) Full year 2011 Results
Gryphon Minerals (GRY) Full year 2011 Results
Sundance Resources (SDL ) Full year 2011 Results

Ex-dividend Date

DJS – David Jones Limited
PMV – Premier Investments
WBA – Webster Ltd

Market Summary

ASX – to open lower
US & UK/Europe – lower
Commodities Stock Index down -3.3%
Gold Stocks Index down -1.4%
Oil Stocks Index down -3.7%

US ADRs – Broadly Lower

BHP down -3.0% & RIO down -4.0%; AWC down -3.2%
ANZ down -3.4% & NAB down -3.8%
NEM up 0.5%, JHX down -5.3%, NWS down -2.5%

By Michael Hevern
Head of Research

For Buy and Sell recommendations on ASX listed companies register for a FREE trial of MDS Financial Research.

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Weekly Market Wrap: European Banks Spark Global Market Selloff Again

Friday, August 19th, 2011

What a difference a day makes. Up until last night the bulls appeared to be in control, although the buying pressure had subsided from last week’s monumental run. Investors are still coming to terms with the downgrade of the U.S. credit rating from AAA to AA+, and rumours persist that other AAA rated European economies may be subject to downgrades.

A number of European countries, namely France, Spain, Italy and Belgium all introduced some short-selling bans to try to stem the recent selling pressure. The crisis is far from over in Europe and obviously the selling ban has not worked, with European banks down around 10% overnight. Note that last time there was a selling ban markets fell another 20%.

Investors continue to be concerned over the euro zone sovereign debt crisis and were disappointed by the comments coming out of the meeting of European leaders. Germany and France failed to alleviate investor concerns about the economic state of the region at the meeting. The euro zone economic council said that it would help strengthen national fiscal solvency, but Germany and France opposed the issuance of euro zone bonds, which had been hoped for prior to the meeting.

The market volatility is likely to continue as investors battle against the machines using algorithmic trading programs (algo trading). Algo trading has become dominant since the US removed the “up tick” rule back in 2008, and until the regulators reinstate the rule the markets will be subject to free fall, which has happened regularly over the past week.

The key US markets are now down over 15% from their April peaks and are perilously close to the flash crash of last week. Note that last time we had conditions like this the market collapsed 40% before finding a floor.

Commodities prices have been volatile this week, and are generally finishing lower, with the exception of gold which is at record levels above $US1,824 per ounce. Crude oil is pulling back to the $US80 level and copper prices are below the $US4.00 per pound level again. The yield on the benchmark 10-year Treasury note briefly dipped below 2% for the first time in nearly 60 years.

US Markets

US stock markets were crushed overnight as investors fear a recession, and following on from the steep losses in European and Asian markets. Sentiment was also dampened as US investment banks lowered their global growth estimates; investors are reassessing their expectations for stock prices going forward.

The Dow Jones Index fell below 11,000, while the S&P 500 and tech-heavy Nasdaq slumped 4.5%. After eking out modest gains earlier this week the US markets have been slammed and look set to test the lows of last week near term. Overnight no sector was spared but investors dumped energy and materials stocks, as commodities prices plunged and the financials joined their Euro counterparts in the rout.

Sentiment has been hurt by poor economic news regarding manufacturing figures and some downgrades to global growth into 2012 from investment banks. This has undermined the tech stock projections and once again the financials have been lagging the market. That changed overnight though when the financials led the falls.

Overnight the Dow Jones closed sharply down -3.7% at 10,990, the S&P 500 index closed down -4.5% at 1,140, the Nasdaq ended down -4.5% at 2,380, and the smaller cap Russell 2000 was down -5.9%. Look for US markets to test recent lows in the coming days.

European Markets

European stock markets held on to recent gains earlier this week, but last night investors rushed for the exits, dumping banking, mining and energy shares due to fears over the euro zone debt crisis and fears of a possible double dip recession as global growth falters. The rout on European markets extended after the disappointing US economic data and global growth downgrades from some investment banks. Bank stocks were decimated after a Wall Street Journal article reported that US regulators are stepping up their surveillance of European banks due to worries that they could face funding difficulties.

Overnight the Stoxx Europe 600 index slumped -4.8% and European losses were spread across all countries and all market sectors, though banks felt the brunt of the falls, with most down over 10% in the session. In London the FTSE 100 index was down -4.5% at 5,092, the German DAX was down -5.8% at 5,602, while in France the CAC was down -5.5% at 3,076.

European stock markets are expected to remain weak until they get some action that addresses the region’s debt crisis situation and investors come to terms with the slowing economic growth, as evidenced in the German GDP figures which came in below expectations.

Asian Markets

Asian stock markets have continued to be weak and many markets are either at their March lows or look set to test these levels near term, as the worries about the global economic outlook continue to weigh on sentiment.

In Japan the Nikkei Stock Index has again fallen below 9,000 and is at its lowest finish since mid-March, as exporters were again hit from concerns over the yen’s strength and fears of declining global demand. In Hong Kong the Hang Seng Index closed around the 20,000 level again, while in China the Shanghai Composite also declined. Asian investor sentiment has been plagued by concerns that debt problems in the key US and European markets will hurt demand for manufactured goods and commodities.

Overnight in China the SSE Composite was down -1.6% at 2,559, while in Hong Kong the Hang Seng Index was down -1.3% at 20,016 and in Japan the Nikkei 225 Index was down -1.3% at 8,943. The South Korean KOSPI was down -1.7% for the session, while the Indian market was down -2.2%.

Our View for the Australian Market

The Australian share markets continue to be driven by overseas sentiment, so expect the volatility to continue near-term, particularly in Europe and the US.

The S&P/ASX 200 index looks set to test its key support level around 3900 near term, and if that fails the next support level would be 3750, which was a pivotal level back in the 2008 GFC recovery phase and held last week.

Expect stock prices to continue to experience volatility near term. Last week we had blue chip stocks down over 30 percent from their April peaks and that was when bargain hunters stepped in. Gold stocks have weathered the storm, supported by the surge in the gold price which is again at record levels above $US1,824 in a “flight to safety”.

There are still concerns that the sovereign debt situation in Europe is out of control and the likes of France may see credit ratings downgrades near term. The euro zone leaders failed to address the concerns over the sovereign debt crisis this week.

The S&P/ASX 200 has traded in a 16 percent range in the past few weeks. The line in the sand was drawn last week around 3750 and the 4000 level remains a pivot key in the short term.

Investors need to be attuned to this resumption in selling pressure, from the negative leads in the U.S. and Europe, as investors plot a path from here, in an environment where there are concerns over faltering global growth and European debt contagion fears, which is sparking the spectre of a double-dip recession.

Our reporting season continued this week with mixed results. The RBA looks set to leave rates on hold near-term, the dividend season is underway, and the Aussie dollar has strengthened this week which is providing additional headwinds for corporations with US earnings.

Banks are attractive on a yield basis, but they are retesting key support levels which would need to hold. Many blue chip stocks are even cheaper on a valuation basis but investors are still fearful, plus fund managers and investors alike are still underweight equities.

The markets need to stabilise near-term and sentiment from overseas needs to improve before we fully commit to the view of a turnaround. On an earnings basis there is reason to start accumulating when all others are most fearful. The S&P/ASX 200 is currently trading at 4140 having pulled back from key resistance around 4325. Key levels for the index next week will be 4325 and 3900.

Keep that shopping list close at hand and be prepared to start accumulating when others are most cautious, you can use options to limit your risks. Expect to see further volatility going forward as the market participants look for some guidance for the direction of the market.

Use options strategies to reduce your risk in these volatile times. MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call me on 1300 610 024 for further information.

For buy and sell recommendations on ASX listed companies register for a free trial of MDS Financial Research.

By Michael Hevern
Head of Research

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Stock Market Analysis: US Markets Lower; ASX to open lower

Tuesday, June 22nd, 2010

U.S. Markets Lower on Chinese currency revaluation; Gold Lower; ASX to Open Lower

U.S. stocks saw selling after early gains could not be sustained.   The key driver was the news that China will be relaxing its Yuan Peg to the US dollar, which was initially seen as a positive,
however the fact there was little detail given about how the revaluation of the Yuan will unfold, sent nervous investors to the sidelines. Our market is likely to trade lower with negative lead from the U.S. Expect to see some profit taking ahead of the month end.

The SPI Futures is above the key level of 4500 the ASX is set to open lower as the SPI closed down 30 points (or 0.7%) at 4,569.   Key levels this week are 4450 and 4650. Expect our market to trade lower today with gold stocks again in focus as the precious metal reaches record highs, Gold stocks see profit taking.

US Markets

In the U.S. the retailers were the biggest drag with the sector down 1.7 per cent over concerns that the yuan revaluation will increase their cost of goods, all 30 stocks in the retailing index fell.  The tech heavy Nasdaq index also retreated with a possible key day reversal overnight. There were some positives with the credit card businesses, Visa and Mastercard jumped 5% as financial regulation changes were not as onerous as first feared.  The Dow down 8 points, or 0.1 per cent, to 10,442, while in the broader market the S&P 500 index lost 4 points, or 0.4 per cent, to 1,113, and the tech-heavy Nasdaq ended 0.9 per cent lower at 2,289.

European Markets

European shares generally rose overnight, with miners in the lead BHP was up 4.7 % and RIO up 5% in London.  In the U.K. the London FTSE 100 index added 48 points, or 0.92 per cent, to 5,299 points. The German DAX gained 76 points, or 1.2 per cent, to 6,292 points, while in France, the CAC 40 rose 50 points, or 1.3 per cent, to 3,736 points.

China has made a move on its currency ahead of this weeks’ G20 meeting, by announcing it will be removing its two year yuan peg to the US dollar, not in a one-off revaluation but the currency will be appreciated in an orderly manner.  This is potentially good news for our miners because a strengthening in Chinese currency will make our resources cheaper.

Asian Markets

The Chinese revaluation news sparked a jump in Asian markets yesterday.  In Japan the Nikkei index of the Tokyo Stock Exchange jumped 2.5% to end at 10,238. The benchmark Hang Seng Index was up 3.1% at 20,912, and China jumped up 2.9% at 2586.

Oil prices finished the week above US$77 a barrel overnight as U.S. The benchmark crude NYMEX for July delivery up US$0.64  to settle at US$77.82 a barrel. Copper prices finished down again but remains around the critical $US3.00 a pound. Copper for July delivery up 5.8 cents to settle at $US2.942 a pound. Gold closed below record levels falling the most in a month, with August gold fell  $US17.60 to settle at $US1,240.70 an ounce.

Key News Drivers Today

G20 – meeting to be held in Toronto this week.

YUAN – China to end its two-year yuan peg to the US dollar. China has signaled a “more flexible yuan” currency policy, which will allow its currency appreciate in an orderly manner against the US dollar.

The yuan has been pegged at 6.83 against the US dollar since mid-2008.  It will not be a one-off revaluation.

US – reacts to Chinese currency revaluation

Markets Overview

U.S. Markets Off Their Highs; Gold Pulls Back

SP500: down 0.4% at 1,113 – Above 200 day Moving Average
DOW down 0.1% at 10,442 – Above 10,000
NASDAQ: down 0.9% at 2,289

Dollar Index: bounce at 85.25 on Higher Euro
A$ higher at 87.96

FTSE: flat at 5,250 – Financials Weigh
DAX down 0.1% at 6,217 – Still in Outperforming�

CHINA: up 2.9% at 2,586 – Currency Allowed to Revalue
HSI  up 3.2% at 20,912

Oil: up 0.5% ($77.82)

Gold: down 1.5% at ($1,240.70)
Commodities Mixed

SPI: Above key Level 4500 ASX
SPI down 0.7% at 4,569

ASX News

The SPI Futures is above the key level of 4500 the ASX is set to open lower as the SPI closed down 30 points (or 0.7%) at 4,569. Key levels this week are 4450 and 4650. Expect our market to trade lower today with gold stocks again in focus as the prescious metals reaches record highs, Gold stocks see profit taking.

AUD – lower at 87.75

AGO – Atlas Iron rose after the company said it had begun mining at its second mine and was on track to quadruple exports by the end of this calendar year.

AMC – faces $466 million law suit in class action seeking damages over the pricing fixing cardboard box cartel.

BHP – S&P Equity Research has downgraded BHP’s target to reflect the RSPT impact, citind estimated lower EPS around 15% due to the RSPT. They went on to say the tax has a 50% chance of being approved.

FMG – Fortescue is poised to sign an agreement with a Chinese engineering group for works to boost iron ore production at its Chichester Hub operations in WA.

GCL – Gloucester Coal independent directors have recommended the miner’s shareholders accept a $1 billion takeover bid by Singapore’s Noble Group Ltd.

MTE – MetroCoal has upgraded the inferred resource at its Bundi thermal coal deposit in the Surat Basin in Queensland by 500 percent.

NAB – NZ’s Commerce Commission has given AMP regulatory approval to acquire the Australasian operations of AXA Asia Pacific Holdings.

ORI – board has approved a $75 million investment to help expand its ammonium nitrate plant in Newcastle.

RIO – BHP Billiton and Rio Tinto have reached an agreement with the WA government for iron ore royalties that brings them in line with other producers.

SDL – Sundance  missing executives has been found dead in aircraft crash.

TLS – again in spotlight as it is to receive $11 billion from the government in exchange for sharing its infrastructure with the NBN and migrating customers to the new fibre network.  This is obviously a huge step in resolving issues between the government and Telstra re the NBN rollout.

Economic Reports out today:

Committee for Economic Development of Australia – two-day conference

AGMs -  Trust Company; Extract Resources; CBio

Market volatility will continue near term, some speculative accumulation is underway.

We the suggest trading strategy is to tighten stops. Be prepared to take profits and open/hold short positions, remember we are trading into the end of the financial year.

Market Summary

ASX – to open lower
US & UK/Europe – US lower, Europe Higher
US ADRs - Mixed!!!…

BHP up 2.3% & RIO up 2.5%; AWC up 3.6%
ANZ up 0.6% & NAB up 1.3%
NEM down 2.9%, JHX down 0.6%, NWS down 1.3%

Commodities Stock Index up 0.2%
Gold Stocks Index down 2.6%
Oil Stocks Index down 0.6%

By Michael Hevern
Head of Research

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Stock Market Analysis: Gold Rules

Friday, June 18th, 2010

We had mixed leads from overseas markets in our shortened trading week, with most markets trading at, or just above, their 50 day moving average. Gold continues to trade strongly.

U.S. Markets

The U.S. continues to get mixed data signals about the strength of its recovery. The latest data was the U.S. Index of leading indicators, a key gauge of the outlook for growth over the next three to six months. This rose 0.4 per cent in May, while other data showed the cost of living dropped and the claims for jobless benefits unexpectedly increased to the highest level in a month. The data is confirming that even though the U.S. economy will keep expanding in the second half of 2010, it will begin with inflation and little job growth. The U.S. markets are trading into their 50 day moving average, with the Dow Jones at 10,434 and the S&P 500 Index at 1,116.

BP was again a focus overnight with the CEO Tony Hayward being grilled by the Congress in the U.S. BP agreed to suspend their dividend and to put $US20 billion into a fund for the victims of the Gulf Oil Spill. There are incredible amounts of money involved here with the total cost of the spill estimated to be as much as $US100 billion over the next 10 years, and what’s even more incredible is that BP are likely to survive this scenario, highlighting what a profitable business they have.

European Markets

In Europe the primary focus has been Spain’s sovereign debt, but concerns appear to be abating as Spain had two successful bond auctions to help pay their debt in the past couple of days. Other positives from Europe include Spain agreeing to allow its banks to undergo “stress testing”, the results of which will be reported in the next couple of weeks; and Greece has been assessed as being on track with the reforms required as part of its rescue package setup to save it from bankruptcy, this is according to a delegation of the International Monetary Fund (IMF), the ECB and EU. This saw the euro trade above $US1.2380.

In the U.K. the FTSE is at 5,253, Germany and the French CAC are trading above their 50 day moving averages.

Asian Markets

During the week the IMF confirmed that Asia’s regional economy is growing so fast that it will rival long-standing economic powers of the U.S. and Europe in the next five years. They went on to say that Asia is set to expand 50 per cent in the next half decade. China was closed most of the week and Japan’s Nikkei index has bounced above 10,000.

Gold is strong

Gold continues to outperform  in the commodities market and closed at record highs overnight at $US1,245.60, and crude oil has also been trading higher around $US77.

Resource super profits tax

In Australia the resources super profits tax (RSPT) continues to be debated, with BHP, Fortescue and Xstrata all still adament that they have not been consulted by the government about the tax.

Our View

Markets are again at key decision levels, as the bulls and the bears are fighting for control. The bulls got the slight upper hand this week by pushing most markets from the 200 to the 50 day moving average levels, but until indices close significantly above these levels, markets will lack positive momentum.

Traders can use the three day highs and lows as triggers to confirm short term market movements, remember that we’re now trading into the end of the financial year. The ASX 200 is above the key pivot level of 4500 at 4,540, at the confluence of the 50 and 200 day moving averages. Investors will be watching carefully as to how the market reacts here, with the key levels for our index next week being 4650 and 4450.

By Michael Hevern
Head of Research

Make the most of the trading tips and market analysis provided in this blog – take advantage of our low brokerage rate of $19.50 and trade shares with Trader Dealer. Also get FREE live ASX Data until December 2010 with our online trading platform Rapid Trader.

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Old Dog New Tricks – Market Performance Dashboard For 2010

Wednesday, December 16th, 2009

Investors around the globe are preparing to close out their books for 2009; most will be very happy with their performance, especially those who were lucky enough to see the turnaround in March and had the courage to hold on as the trend unfolded.

Huge sums of money are still sitting on the sidelines waiting for an elusive market pullback. Most markets – having made history in the rate of their recovery from the bloodbath resulting from the Global Financial Crisis (GFC) – are now grinding sideways and are refusing to pullback. 2010 will start out as a battle between bullish and bearish forces in an attempt to resolve these sideways markets.

When developing your investment strategy you need to evaluate how investment markets are performing. To assist you in this evaluation we have developed a Market Performance Dashboard. The Dashboard provides an overall view of the global market environment to help investors assess their investment strategies.

The components of the dashboard are:

1) Asian Economy Market Leader – China (The Shanghai Index)
2) Western Economy Market Leader – S&P 500 Index
3) Investment Funding US Dollar Index

The performance of these components is tabulated below. You can see that China has been the engine behind the market recovery in the aftermath of the Global Financial Crisis (GFC). The US Markets then followed the bullish lead from China. Year-to-date (YTD) China is up 76%, the US S&P 500 index up 36%, while the US dollar has fallen 6%.

Table 1: Performance of Dashboard Components.

China the Engine Room

The Chinese market led global markets out of the GFC, turning around back in October 2008 (refer to the chart below). China has led the performance of all other major market economies. The GDP figures from China have confirmed that their economy is continuing growth, though at a slower rate. The GDP figure in the third quarter was up 8.5%, topping the previous quarter growth rate of 6.1%. The government is targeting an annualised rate of 8% for 2009.

Recent data confirms that the manufacturing sector is expanding. This does raise concerns about overcapacity in the Chinese economy, as this could have a deflationary impact on its trading partners.

Chart 1: China s Shanghai Index

US Market

The US markets have been grinding sideways for the past month. M&A activity is healthy in the US markets and the market did not even blink this week as the US banks said they are preparing to payback US$51 million of their bailout funds through further new share sales, even General Motors is saying they may be paying back their bailout monies sooner rather than later. This all points to a healthy market environment, though there are still issues with asset valuations and the credit markets (refer to the recent situation with Dubai World).

Recent economic reports have supported the view that the US markets continue to recover from the worst market conditions since World War II. Retail Sales Index and the Producer Price Index are improving and recent unemployment figures showed a contraction to 10.2%.

Chart 2: S&P 500 Index

Investment Funding

The dollar index measures the greenback against a basket of seven currency majors, dominated by the Euro (56.7%). The US dollar has been seen as the reserve currency of choice for years; however this view appears to have had a dramatic change this year.

Money to invest in stocks must be funded from somewhere. Until early this year the Japanese Yen has been the funding currency of choice, but as a result of the U.S. Federal Reserve slashing of interest rates for an extended period and the severe devaluation of the US dollar (see the chart below) the tables appear to have turned and the US dollar was starting to be seen as a funding currency. This view held true until last month and appears to be unwinding as the US Dollar Index has surged 4% in the past few of weeks.

Chart 3: U.S. Dollar Index

The Dollar Index and commodity prices have been inversely correlated as a general rule. Thus by knowing what the U.S. Dollar is doing you will have a feel for the performance of the commodities markets.

Conclusion

The S&P 500 and the Dollar Index have been inversely correlated all of this year. If this relationship continues into 2010 it could provide headwinds for the US equities markets, if the US dollar continues its resurgence. The engine room for the global equities markets is China and you should be monitoring it carefully in order to align your investment strategies with the world market conditions.

The Market Performance Dashboard for 2010 outlined here is designed to give you a simple snapshot as an early warning of any change in market direction and/or sentiment, as we embark on a new financial year.

Keep up to date with market developments through our daily revision of the Market Performance Dashboard at the MDS Financial Research Morning Wrap.

Michael Hevern
Head of Research

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Tuesday, 6th October 2009 Morning Wrap

Tuesday, October 6th, 2009

James Gerrish

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or

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General Advice Only************************************************

In this morning s wrap DOW: Up 112 points
Services industry expands
Goldman s upgrades banks
NASDAQ: Up 20.04 points
Strong data
FTSE: up 35.63 points
Commodities recover

CHINA: Closed
PRC celebrations
Oil: up 46 cents to $70.41
Pretty flat
Gold: up $13.50 to $1017.80
Commodities higher;
USD lower
SPI: Critical Level(s): 4450 to 4750
SPI up 47 points to 4630

ASX NewsRBA decision on rates 2.30pm
ANZ Jobs data surprises to the upside
Brambles in a trading halt due back Thursday
Myer share float string demand
Stocks to open higher
Buying into the dips obvious
Still plenty of cash to support the market

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Friday, 11th September 2009 Morning Wrap

Friday, September 11th, 2009

Presented by Michael Hevern
MDSFinancial

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or

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General Advice Only
************************************************
In this morning s wrap

DOW: up 0.5% (at 11 Month Highs)
August Trade Deficit $37bn (vs $27.5bn June);
Proctor & Gamble ups Forecasts
NASDAQ: up 1.1%
Texas Instruments ups Forecasts;

FTSE: down 0.3% (at 10 Month Highs)
Closes Below 5000; Energy & Banks Weigh;
DAX up 0.4% & CAC down 0.1%

NIKKEI: up 1.9%
JPY: Buffet to Visit Japan;
Hang Seng up 0.5%

CHINA: up 0.1%
August PMI at 54 – Expansionary;
V-Shaped Recovery if GDP 8%

Oil: up 1.0% ($72)
OPEC Holds Production;
Volatile!

Gold: up 0.4% ($997) (Testing New Highs)
Commodities Lower;
USD Lower

SPI: Critical Level(s): 4350 to 4650
SPI up 48 (0.9%)
AUD Yearly Highs

ASX News

IPOs – $12bn worth next year
YTD – $45.5bn in capital raisings

Gorgon – $70bn deal with Korea & Japan to supply LNG
ANN US chief Doug Tough resigns
CZR IPO listed up 14%
SIP completes $297m insto raising
BHP Gulf of Mexico oil fields performing above expectations
WHS FY profit down 15%
MYER Christmas sale (IPO)
CMJ Stokes gets 2 board seats, in exchange for buy holiday

August Unemployment 5.8% – BUT move to part-timers
Materials & Energy stocks to see profit taking
Banks to hold
ASX to open positive
US & UK positive on M&A

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Wednesday, 2nd September 2009 Morning Wrap

Wednesday, September 2nd, 2009

Presented by Michael Hevern
MDSFinancial

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or

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General Advice Only
************************************************
In this morning s wrap

DOW: down 1.9% (at 10 Month Highs)
September Effect ; Unemployment Friday;
Financials, Materials & Energy Weigh

NASDAQ: down 2%
Profit Taking;

FTSE: down 1.8% (at 10 Month Highs)
London Plays Catch Up;
DAX down 2.5% & CAC down 1.9%

NIKKEI: up 0.4% (10 Month Highs)
JPY: BoJ Expects Only Moderate Recovery ;
Hang Seng up 0.8%

CHINA: up 0.6%
August PMI Up; Though Growth & Lending Concerns;
Volatility Increasing;

Oil: down 2.7% ($69)
Ranging;
Volatile!

Gold: up 0.5% ($956)
Commodities Lower;
USD Higher

SPI: Critical Level(s): 4250 to 4450
SPI down 71 (-1.6%)
Reporting Continues

ASX News

Banks 4 majors have ALL the retail mortgage business
TOL rumoured to be running ruler over Brambles
GNS capital raising $145m; Buys ITC Timber from Elders $100m
LEI wins $244m water station Qatari contracts
OSH PNG LNG costs lower than forecast
NXS to raise capital for Victorian Longtom gas Project

RBA rates on hold (tightening bias); analysts predicting 2% rise next year
GDP report today

Materials & Energy stocks to weigh
Banks to see profit taking
ASX to open lower
US & UK sell off

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Wednesday, 26th August 2009 Morning Wrap

Wednesday, August 26th, 2009

Presented by Michael Hevern
MDSFinancial

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or

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General Advice Only
************************************************
In this morning s wrap

DOW: up 0.3% (at 10 Month Highs)
Housing & Consumer Confidence Data
Beat Forecasts

NASDAQ: up 0.3%
Bernanke Gets 4 More Years Heading the Fed

FTSE: up 0.4% (10 Month Highs)
Telcos Support; Miners Weigh;
DAX up 0.7% & CAC up 0.7%

NIKKEI: down 0.8% (off 10 Month Highs)
JPY: Toyota to Reduce Production 10% 2010;
Hang Seng down 0.5%

CHINA: down 2.6%
Volatility Increasing;
Sinopec on Acquisition Trail

Oil: down 3.1% ($71)
Recovery Continues;
US Inventories Down;

Gold: up 0.2% ($945)
Commodities Lower;
USD Flat

SPI: Critical Level(s): 4250 to 4450
SPI up 16 (0.4%)
Reporting Continues

ASX News

SUN FY profit drops 40% ($384m)
CEU FY Net Loss widens ($531m); Capital Raising @33c
FGL FY Profit $438m (3 times); wine business underperforms
ALL 1H09 profits down 147%, Rev down 5.3%, EBITDA down 112%
OSH 1H09 profits down 73%, PNG LNG on track

Reports:
W: AOE, LGL, CMJ, GFF, PBG, SEV (CMJ stake), SGX, TCL, TOL, WDC, ;
Th: WOW (Strong), CWN (Rev?), GNS (Loss?), VBA (startup VAustralia)
F: CTX, HVN NRT, SHL

Materials & Energy stocks to profit taking
Banks to recover
ASX to open flat
US & UK Holding

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