Posts Tagged ‘asx 200’

Weekly Market Wrap: Eurozone Debt Contagion Hits France and Germany

Friday, November 25th, 2011

Traders around the world have been held hostage this week to the unfolding train wreck in the eurozone, as the debt crisis spreads to the big gorillas of the region, France and Germany.

The global focus has been on the eurozone once again, with the Italian and Spanish costs of debt remaining at their highest levels since the inception of the eurozone. Across the region banks have again been sold down and the growth-sensitive resource firms have also been under pressure due to falling commodities prices.

European stock markets extended their losing streaks again overnight, as eurozone leaders cannot come to an agreement on how to resolve the debt crisis. A number of markets have been down for around nine consecutive sessions, which means that a relief may be on the cards sooner rather than later, and technically many stock markets are at their 61.8% retracement levels from their peaks in October, which is often a good level for a potential recovery.

German Chancellor Angela Merkel has dashed hopes that she could be open to the idea of a joint eurozone bonds issue as a means to easing the region’s financial woes, saying that a common interest rate for all eurozone borrowers would send the “wrong signal”. Germany does not want to risk its AAA credit rating and instead wants to see commitment from the PIIGS economies regarding their austerity measures.

The US markets have crashed through their 50 and 200 day moving averages this week, succumbing to the deluge of bad news over the global debt crisis. The news came as the US “super committee”, responsible for reducing the budget deficit by at least $US1.2 trillion over the next 10 years or risk triggering automatic spending cuts, found itself deadlocked. This triggered a selloff as traders worried about a possible credit rating cut being the fallout of the negotiations. However Moody’s Investors Service has since reiterated its triple-A rating on the US and said the committee’s failure to agree would not by itself lead to a rating change. The minutes from the Fed’s FOMC policy meeting boosted also some hopes that the central bank may embark on more stimulus measures. Following that sell-off however the losses continued after the government revised third-quarter growth to 2% from an initial estimate of 2.5%.

Another focus in the US this week has been on “Black Friday”, which sounds ominous but it is really a good thing – it announces the start of the Christmas shopping season. According to Bloomberg 25% of Christmas shopping is done in the week following Black Friday, and the Christmas shopping season accounts for over 40% of the total retail shopping sales for the year, so it is a critical time for retailers, and for Santa Claus.

The US dollar continued its surge this week in a flight to safety, and this has again been weighing on commodities prices. The major metals continued to fall, with gold breaking through the $US1,700 level and is now trading down at $US1,690. Crude oil has continued to fall below the $US100 per barrel and copper has pulled back to $US3.27 per pound.

Asian markets have been bearing the brunt of the selling driven by the eurozone debt crisis, because the eurozone is the major customer for products produced by the Asian economies. Another negative for Asian investor sentiment was the concern of the slowing growth in China after a HSBC report out early this week showed Chinese manufacturers have reported the preliminary “flash” PMI figure dropped to 48 in November (compared with a mildly expansionary 51 previously). A reading below 50 suggests a contraction in the sector.

Asian markets have again sold down heavily in the past week, with Hong Kong down -3.5%, Korea down -2.5% and China has eased -1.5% for the week. Technically these stock markets are at their 61.8% retracement levels from their peaks, which is often a good level for a potential recovery, but traders are still being held hostage by the eurozone crisis.

Our View for the Australian Market

Our market has again succumbed to the negative sentiment from overseas, and continues to trade below its 50 day moving average, which is a negative sign. The line in the sand which we highlighted last week, around the 4150 level which had offered support for the past couple of months, has now been breached and the market will need to overcome this level in the short-term, if we are to get a Santa Claus rally this year. The 4080 level is crucial in the short term. We have continued to see weakness in the banks, and the retail and resource stocks have also succumbed to selling pressure. In the Analyst’s Eye last week we had a timely talk about identifying stocks that have the potential to pullback in the near-term.

After another struggle between the bulls and the bears this week, the bears remain in control as we have broken below the 50 day moving average. The 200 day moving average, which sits around 4,410 still offers significant resistance for any positive momentum into the end of the year, and we are sitting around the 61.8% retracement level which is often where we see a relief rally.

Investors should be looking to utilise options strategies to pick up stocks that are exhibiting value. Many stocks are now back at their September levels, and you will therefore clearly know if you are trading in the wrong direction. Options can be used to protect your profits and manage your risk in this type of market.

Remain attuned to the news from overseas, particularly from China, Germany and the US regarding their economic growth and debt issues. Monitor the performance of the US dollar for a guide to the future direction of commodities and equities prices.

The S&P/ASX 200 is down -4.2% for the week and is currently trading at 4005 and looks to be setting up to test support again, around the 3950 level near-term. Key levels for the index next week will be 3950 and 4150, with 4080 being the key pivot level. Expect to see volatility to remain elevated as the market participants look for direction in these uncertain times.

By Michael Hevern
MDS Trading Desk

MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.

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: Central Banks Act to Rescue the Eurozone

Friday, September 16th, 2011

Globally markets are recovering from their sell-off earlier in the week, triggered by problems with eurozone banks and the disjointed approach by the region’s leaders to backing the European Financial Stability Fund (EFSF). These concerns resulted in Moody’s downgrading the ratings of two French banks, Societe Generale SA and Credit Agricole, citing liquidity issues.

This has prompted German and French leaders to confer and commit to assisting debt-laden Greece to remain as part of the eurozone. A global equities rally has been triggered on the third anniversary of the Lehman crisis, the event that sparked the GFC, as authorities have now taken proactive action to address the liquidity issues in the financial system across Europe. Five of the world’s largest central banks have coordinated their efforts to free up the European banking system, by deploying dollars into the system. This will take some pressure off European lenders that have had trouble borrowing the US currency, but has also highlighted the funding issues those lenders currently face.

US stock markets have risen for a fourth consecutive session of gains and are attempting to form a base. UBS shares dropped -10% after the Swiss bank said it would likely post a third-quarter loss after a trader booked $US2 billion in losses through what it said was unauthorised trading.

European stock markets sold off heavily early in the week but are recovering. The German and French markets are bouncing off 2-year lows, while in London the market is relatively stronger and holding above recent lows (similar to the US).

Many Asian stock markets have had holidays this week. The Hong Kong and Chinese markets are trading around 52-week lows, suffering from the concerns in the eurozone and additional domestic concerns over further monetary tightening measures by the Chinese government.

Our View for the Australian Market

The Aussie market is ending the week on a positive note, as it managed to bounce off a key psychological level around the 4000 mark. The news that major central banks are taking action to ensure there is continued liquidity within the eurozone’s financial system is significant – now all they need to do is agree on the EFSF funding package to bail out the PIIGS economies in the eurozone (easier said than done).

Local economic data has again been mixed this week. Robust trade figures failed to spark the market earlier in the week, after the Australian Bureau of Statistics (ABS) reported Australia has posted a trade widening surplus for the fifth consecutive month, as mining exports continue to hold weight in the face of a global economic slowdown. The balance on goods and services was a surplus of $1.826 billion in July, and this compares to the downwardly revised surplus of $1.817 billion in June.

The Federal Government’s Bureau of Resources and Energy Economics (BREE) also reported that the value of Australia’s resources and energy exports surged by 27 percent last financial year to a record $175 billion. Iron ore export earnings jumped by 56 percent to $54 billion in 2010-11.

The Westpac-Melbourne Institute reported that the Consumer Confidence Index rebounded strongly in September, up by 8.1 percent, showing that a recovery in economic growth and diminishing expectations of an interest rate hike has reassured householders; this followed an August reading which had fallen to the lowest level since May 2009.

However investor mood was dampened by news that the ABS has revised second quarter inflation lower, with core inflation down to 0.6 percent in the second quarter from the 0.9 percent reported in July, indicating price growth is not as strong as previously predicted. This prompted the National Australia Bank to say it now expects core inflation to remain between 2.5 to 2.75 percent until 2013, taking the pressure off the RBA for further interest rate rises.

We are definitely in a trader’s market, and the market looks like it wants to run higher into the end of the quarter as it recovers from its very oversold state. The S&P/ASX 200 index is attempting to swing higher, but it needs to trade above the month’s high to confirm the momentum. The key resistance level remains around 4360 near term and the market held the 4070 key support this week.

Stock prices will to continue to experience volatility near term, but a base appears to be forming in the index near-term. In commodities the standout performer has again been the gold volatility play, as the gold price reached a high above $US1,850, but has now retraced all the way back below $US1,780 in quick time. Gold is currently trading above $US1,778 but this volatility could be pointing to a double top. Crude-oil prices held around $US90 per barrel, this has provided support for energy stocks near-term.

The other key driver for markets near-term will be the performance of the US and Euro dollars. The US dollar index is holding above four-month highs, while the Euro dollar has broken down out of its trading range, which could be a negative for equities and commodity prices if this continues.

Investors will be cheering the coordinated central banks’ effort to inject liquidity into the eurozone, however there is still the issue of eurozone bank solvency to contend with. Remain attuned to the news from overseas, particularly from China, Germany and the US regarding their economic growth and debt issues.

The S&P/ASX 200 is currently trading at 4160 having found key support at the 4070 level this week. Key levels for the index next week will be 4360 and 4070. Be prepared to use options to protect recent gains.

Keep that shopping list close at hand, be prepared to start accumulating when others are most fearful, and remember 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.

By Michael Hevern
Head of Research

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

MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.

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Intra Market Relationships: the S&P/ASX 200, Aussie Dollar and US Treasury Bonds

Friday, September 2nd, 2011

I had a nice trade this week in the Aussie 200, trading contracts for difference. I’ll show you how I made the decisions to enter the trade, but first of all a quick lesson in intra market relationships.

The US Treasury bond is seen as one of the safest places in the world to invest money. It is backed by the US government and despite the recent downgrade in its credit rating, the US has never defaulted on a payment. The market perceives that it is so safe that in the financial crisis of 2008 bonds were pushed up to a level that meant interest rates went negative. This means the US government was being paid to borrow by the investors!

A bond pays interest and the price of the bond changes as the market’s expectations of interest rates rise and fall. If interest rates rise, bonds fall in value and if interest rates fall then bonds rise in value. The higher the price is, the lower the return on the bond.

When investors perceive that the market environment is risky, money flows into bonds. When people are scared by stock market falls, they will buy US Treasury bonds and when people are prepared to take on more risk, they will sell bonds and buy shares. So the normal relationship between Treasury bonds and the stock market is:

• bonds up, stock market down
• bonds down, stock market up

Adding in another independent variable we can follow the relationship between the Aussie dollar and the stock market. If money is flowing into the Aussie dollar then some of it will find its way into the Aussie stock market, and if money is moving out of the Aussie dollar then the Aussie market is likely to fall. The Australian market and dollar are perceived to be more risky than the US markets so when investors are scared they sell Aussie dollars and Aussie shares and when they are prepared to take on risk they become buyers. The normal relationship between the Aussie dollar and stock market is:

• AUD up, stock market up
• AUD down, stock market down

Now back to the trade from Wednesday morning. I was watching the last hour of trading in the US markets and the setup highlighted in the charts below unfolded. The charts are hourly charts of Aussie dollar (AUD=), Treasury Bonds Dec Expiry (ZBZ1) and the S&P/ASX 200 (.AXJO). The highlighted setup occurred. The Treasury bonds fell sharply, and at the same time the Aussie dollar and Aussie 200 both fell away as well. This is not normal behaviour; remember if bonds are falling then Aussie 200 should be going up. The sharp fall in the bond market had me believe that a turnaround in the Aussie 200 was likely.

Trade Setup: ASX 200, AUD, US Bonds

I watched the market closely for signs that the Aussie 200 had stopped falling and made my first entry around 4325 as it began to climb higher. Instead of rocketing to the upside as I would have liked, the market broke to a new low. It was still above my stop loss, but I was losing a small amount at this stage. The bonds were still lower and the AUD now turned up, this gave me the conviction to add to the trade near 4315 once the Aussie market began to climb again. The trade was supported by simple technical analysis with the market bouncing off an up trend line.

Technical Analysis of the XJO

My first exit came about very quickly as the market climbed to the down trend line. There was no guarantee that a breakout would occur so I chose to take some profits early, with a gain of about 15 points on the second entry. The remainder of the position was exited just below 4350 with a limit order set to take me out when my objective had been reached. This was a gain of about 25 points on the second entry and happened to coincide with the market rolling over and falling away from this level. This was more likely good luck than good management.

By combing the view of different markets and understanding the intra market relationships I was able to make a nice profit on this trade.

By Jeff Cartridge
Education Manager

Charts from Market Analyser: download a free Market Analyser trial and test this trade setup for yourself.

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Weekly Market Wrap: Investors Rejoice! Ruling Off a Terrible August

Friday, September 2nd, 2011

Globally markets drifted higher this week as investors ruled off a terrible August for equities. However the Chinese market has underperformed and is finishing lower for the week, as investors assess whether they are still on track to engineer a soft landing.

US Markets

The news out of the US Jackson Hole economic summit was generally well received, though the US Federal Reserve Chairman stopped short of disclosing a fresh round of monetary stimulus (QE3). Later in the week, the FOMC released the August meeting minutes, which actually suggested that QE3 is a possibility, and that the September FOMC meeting will be extended to two days. The minutes suggested an addition to quantitative easing, possibly by extending the average duration of the central bank’s existing bond portfolio by selling bonds with short maturities and buying those with longer maturities.

Data out of the US this week was mixed, with the Institute for Supply Management (ISM) purchasing managers’ index coming in at 50.6 for August, below expectations. New orders, production and employment were all weak and consumer confidence data disappointed. The US government has also downgraded its outlook for the economy, forecasting unemployment could average 9% in 2012 and predicting slower-than-expected growth for the next several years. However American consumers increased their spending in July by the most in five months and the ADP weekly employment data was promising.

August was a tough month for investors as volatility spiked. In the US for the month of August the Dow lost -4.4%, the index’s fourth straight monthly loss. In the broader markets the S&P 500 fell -5.8% and the tech-heavy Nasdaq slumped -6.7%. After a busy week for data releases, and ahead of their Labor Day weekend, investors will now look to the Non-Farm payrolls employment report, due out tonight.

European Markets

In Europe investor sentiment has been on the edge, with continuing worries about the debt crisis and the fact that the short-selling bans have had to be extended, but the markets have managed to drift higher for the week. The Stoxx Europe 600 index, which is a broad index that sums up euro zone sentiment, plunged -11% for the month of August, on concerns that the euro zone could tip into a double-dip recession.

The banks continued to suffer from selling pressure this week and data is showing euro zone manufacturing contracted in August and is at a two-year low. The European Commission said its euro zone economic sentiment indicator fell to 98.3 in August from 103.0 in July, below estimates, and its biggest monthly fall since December 2008. The euro zone manufacturing purchasing managers’ index (PMI) also fell to 49.0 points in August (down from 50.4 in July), as manufacturing growth in France, Italy and Spain all slumped into negative territory. Investors need to monitor news out of Germany, which is the largest economy in the region, for any further signs of weakness, and of course the sovereign debt contagion issues are still simmering in the background.

Asian Markets

In Asia this week investors were buoyed by positive leads from Europe and the US. However Chinese investors are still troubled by concerns of further fiscal tightening as a result of their high inflation and the Chinese manufacturing PMI data out this week confirming the Chinese economy is slowing. This is raising fears that China is losing grip in its attempt to engineer a soft landing from it runaway inflation.

Our View For the Australian Market

The Aussie market has had a positive week and is now retracing from its key short term resistance levels. The reporting season has come to a close, with a number of companies announcing job losses and continuing challenging business conditions. The S&P/ASX 200 index has managed to continue to swing higher but is now testing the key resistance level around 4360 near term. If the market retraces 4070 will be the next level of support 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. In commodities the standout performer has been gold, which has recovered above $US1,825 level this week after having traded as low as $US1,700 last week, as the bullish trade became overcrowded.

Resource stocks will remain in focus near-term, after Goldman Sachs said this week that they expect demand for metals to remain healthy, driven by emerging markets. Rio Tinto said that global iron ore production growth will need to be at a rate of at least 100 million tonnes per annum over the next eight years to meet rising demand, from increased industrialisation and urbanisation in India, China, Indonesia, Vietnam and Africa.

Investors need to remain attuned to the news from overseas particularly from China, Germany and the US regarding their economic growth. There are still concerns that the sovereign debt situation in Europe is out of control. The German economy is slowing and extension of the short-selling ban France, Italy and Spain has had limited success in alleviating the selling pressure on the banks.

In the local market our reporting season has come to an end, and there have been mixed results (as reported in our daily market report). The RBA still looks set to leave rates on hold near-term but the bias remains to the upside. The dividend season is winding down, and the Aussie dollar has strengthened again this week which is providing additional headwinds for corporations with US earnings. Banks are attractive on a yield basis, but they are still trading below their 50 day moving averages and may see weakness near-term. Recent key support levels have held. Many blue chip stocks look set to retrace from key short term resistance levels, and fund managers and investors are still underweight equities.

The markets appear to be stabilising near-term. Sentiment from overseas also appears to be improving and there continue to be trading opportunities. On an earnings basis there is reason to start accumulating when others are most fearful, and the recent reporting season has given investors a clearer insight into specific companies. The S&P/ASX 200 is currently trading at 4275 having found resistance around the 4360 level. Key levels for the index next week will be 4360 and 4070. Be prepared to use options to protect recent gains.

Expect to see further volatility going forward as the market participants look for some guidance for the direction of the market.

Be prepared to start accumulating when others are too cautious, and don’t forget you can use options to limit your risks in these volatile times. The MDS Financial Advisory Services team can help with this and we have also discussed some of the strategies in our Analyst’s Eye Articles recently.

By Michael Hevern
Head of Research

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

MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.

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Stock Market Analysis: Macro and Technical Analysis of ASX Top 20

Wednesday, April 6th, 2011

Hello all,

I’ve just posted a presentation on a macro and technical analysis of the Dow Jones, ASX 200 and the ASX Top 20.

Watch the presentation here.

Best Regards,

Leon Hinde.

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Global Energy Requirements in the Spotlight

Friday, March 18th, 2011

The nuclear plant problems in Japan resulting from the earthquake and subsequent tsunami have highlighted issues facing developed economies as they attempt to meet the burgeoning energy demands of the ever-increasing global population.

Nuclear Energy Review

Energy supply in Japan has been severely cut after the earthquake. The Tokyo Electricity Power Company (Tepco), which operates the stricken nuclear reactors at Fukushima, has been under tremendous pressure in the past week as it desperately attempts to stabilise the core reactors at the plant.

The Japanese nuclear crisis has caused an increasing number of other countries, including China, Germany, France and the United States to reconsider their use of nuclear power.

In Germany, Chancellor Angela Merkel has called for a “measured exit” from nuclear power and an expedited transition to renewable energy. She has ordered a temporary shutdown of 7 of Germany’s 15 oldest nuclear reactors while authorities conduct safety probes, and at least one has been permanently closed as a result.

China, currently building more reactors than any other country in the world, has announced that the government will suspend approvals for nuclear power plants so it can conduct safety checks at existing plants and those under construction.

China is currently building 27 new reactors, which is approximately 40% of the total number being built around the world. China has 13 nuclear power plants in use that supply only 2% of its electricity, but it plans to add a total of 110 nuclear reactors over the next few years and seeks to reduce its reliance on coal-fired plants that currently supply about three-quarters of its energy needs but which emit greenhouse gases. It is also developing alternate energy through solar, wind and hydro-power facilities.

The nuclear situation in Japan has also generated unease in the United States, which gets about 20% of its electricity from nuclear power plants, but has not commissioned a new plant in over 30 years.

Next Move

Governments around the world need to review their nuclear energy power supply facilities and policies. The “black swan” event now has to be re-evaluated in light of the disaster in Japan, in which the earthquakes and resulting tsunami have combined to produce potentially catastrophic consequences.

Alternate Energy Sources

In the near-term, coal, oil and gas will be the winners out of the current situation. We have seen shares in uranium companies and nuclear power suppliers plummet over the past week. However near-term these stocks may be over-sold, presenting trading opportunities.

ASX Energy Sector

The Aussie energy sector has continually underperformed crude oil prices, as they now consistently trade above $US100 and prices below $US75 appear to be a distant memory.

Performance of ASX Listed Companies in the Energy Sector
Table: ASX 200 Energy Stock Performances

The table above shows the weekly, monthly, quarterly and annual rolling performances of the ASX 200 stocks in the energy sector.

Surprisingly Caltex (CTX) is the only stock that has shown a consistently positive performance. The other standout in this table is the battering that the uranium stocks have undergone in the past week, particularly Energy Resources of Australia (ERA), Extract Resources (EXT) and Paladin Energy (PDN), all down over 20 percent. For the quarter only Auroa Oil & Gas (AUT), Caltex (CTX), Santos (STO) and Worley Parsons (WOR) have produced gains over 9 percent.

Charting this information provides some other insights.

ASX 200 Energy Stock Performances
Chart: ASX 200 Energy stock performances

Some additional information can be deduced from this chart. Clearly uranium share prices have been hammered in the past week and stocks like Energy Resources of Australia (ERA), Extract (EXT) and Paladin (PDN) have the potential to provide some sharp trading opportunities near-term.

Stocks that are set up to provide good returns near-term include:

* Caltex Australia (CTX)
* Linc Energy (LNC)
* Origin Energy (ORG)
* Santos (STO)
* Worley Parsons (WOR)
* Woodside Petroleum (WPL)

Conclusion

The energy sector has been in focus since mid-2009. Energy stocks which have lagged the commodity price look set to provide some good trading opportunities in the near-term. Crude oil prices have recently jumped due the turmoil in the Middle East and North Africa. The Japanese nuclear crisis will only add to the volatility in the sector.

Keep these stocks that have been highlighted above on your watchlist.

By Michael Hevern
Head of Research

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Stock Market Analysis: Macro and Technical Analysis of ASX Top 20

Thursday, November 25th, 2010

Hello all,

This morning I’ve posted a recording from last night covering a macro and technical analysis of the Dow, ASX 200 and the ASX Top 20.

Click here to view.

Best Regards,

Leon Hinde.

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Stock Market Analysis: New PM as Markets Weaken

Friday, June 25th, 2010

Weekly Stock Market Analysis

The ASX found resistance at key levels this week and is trading lower as we approach the end of the financial year. The leadership spill in the Labor Government resulted in Australia’s first female Prime Minister, Julia Gillard. The initial reaction from the market was positive, especially after the New PM said that the government was prepared to undertake negotiations over the resource super-profits tax (RSPT). However investors soon refocused on the bad news that continues to come from overseas.

Technically most overseas markets are weak, having found resistance around their 50 day moving averages, and they are now trading below their 200 day moving averages and look to be heading towards their recent lows.

US Markets

The economic data from the U.S. was negative this week. The Fed also dampened investor confidence by saying that the economic growth is likely to weaken near term. Reports on the housing sector confirmed this message with new home sales down 33 percent last month and existing homes sales down 2.2 percent in May. The other concern for investors is the ongoing debate over the new financial regulations to be imposed in the U.S. The U.S. markets are trading below their 50 and 200 day moving average, with the Dow Jones at 10,152 and the S&P 500 Index at 1,074.

European Markets

The week started positively for the European markets after Spain agreed to publish the banks “stress test” results in the next couple of weeks, but investors quickly turned their minds back to ongoing sovereign debt issues, which again weighed on the markets. Overnight renewed concerns over the solvency of Greece hit the markets and prompted the European Union (EU) and International Monetary Fund (IMF) to agree to $US155 billion in loans to Greece at below market rates. This move means the Greek government does not need to borrow money on the bond market.

The G-20 meeting is to be held this weekend and the focus there will be on whether the unified approach can continue, in relation to the measures necessary to support the ongoing recovery. In the U.K. the FTSE is lower at 5,199, Germany and the French CAC are trading below their 50 day moving averages.

Asian Markets

The key story in Asia this week has been China saying it will end its two-year yuan peg to the US dollar. China has signaled a “more flexible yuan” currency policy, which will allow its currency to appreciate in an orderly manner against the US dollar, it will not be a one-off revaluation. China traded flat for the week at 2,555 and Japan’s Nikkei index has weakened below 10,000, while in Hong Kong the market is still trading above 20,000 at 20,733.

Commodities

Gold has backed off its record highs overnight trading at $US1,245.60 and crude oil has also been trading around $US77.

Resource super profits tax

In Australia the resources super profits tax (RSPT) continues to be in focus. The week started off with BHP, Fortescue and Xstrata all still adament that they have not been consulted by the government about the tax. However, one of the first tasks on the agenda for Australia’s new Prime Minister Julia Gillard will be to open up negotiations with the mining industry over the proposed resources super-profits tax (RSPT). Time will tell how this is resolved.

Our View

The ASX 200 has found resistance around 4600, as the confluence of the 50 and 200 day moving averages has provided a barrier to the recent up move.

The key pivot level is still around 4,500 and the key levels for our index next week are 4550 and 4250. Remember that we are trading into the end of the financial year, and this will likely weigh on our markets, as investors take the opportunity to clean up their portfolios.

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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Trader Dealer News: Analyst’s Eye Identifying Low Risk Entry Points

Friday, June 18th, 2010

Introduction to Identifying Low Risk Entry Points

We have already discussed using multiple time frames to improve your entry timing, but there are other entry techniques that can improve your trading and your probability of success. The key here is to identify low risk entry points.

Identifying Low Risk Entry Points as a Share Trading Technique

Low risk entry points are points at which you can enter the share market and quickly identify when the trade is not going as planned and exit for a small loss. There are a few techniques that can be used to determine these entry points.

The majority of people think in straight lines, projecting the past performance into the future. When the bull stock market has been running for a few years everyone is talking about the money they have made and how much they will have in the future. When the stock market has been down for 2 – 3 years no one wants to buy stocks as the fear is that the stock will continue to go lower. But this thinking is completely out of sync with the way the market actually functions.

Markets move in cycles and as an investor or trader you must learn to think in cycles. At the peak of a market, investors tend to over-project the future. In the middle of the cycle projections and reality are in alignment, and then the pessimists take over and project that the likely path is much worse than it is.

Markets move in cycles

Markets move in cycles

So how can an understanding of market cycles help us when trading?

Well it has a significant effect on when to enter a trade. The beginner often chases a stock as it moves higher and jumps on board just as the stock falls over. If you’re following the market cycles you can get on board the stock as it turns higher and begins to rise. Remember this is the stage when the stock market is underestimating the up move. Once the stock starts to lose momentum, then it’s time to take an exit while the market is still anticipating further upside.

Bourse software cyclical nature of movement

Bourse software: cyclical nature of movement

Notice the cyclical nature of movement of the S&P/ASX 200, as viewed in the Bourse charting software during the last 8 months. A move to a new high is followed by a move down and then a recovery back up. The stock market has not exhibited a strong trend in any direction but this is normal for markets with periods of consolidation far more common than strong trends.

Identifying share price movement – the rubber band theory

Another way to consider the cyclical nature of market movements is to consider that the share price is attached with a rubber band to a trendline or a moving average. When the share is a long way away from the reference line the rubber band is stretched. When it is close to the line, the rubber band is relaxed. A stretched rubber band is most likely to snap back and a continuation is extremely unlikely. Occasionally the rubber band will break, but the probability is in favour of the market reversing from an extreme. Entering as the stock turns higher off the trendline provides a low risk entry. If the stock then falls below the trendline you know very quickly that your trade was wrong. If you enter after the share has moved up, you must wait for the market to pull back to the trendline and then break below to determine whether you were wrong. The cost of a mistake here is far greater than the previous entry and as a trader you are taking on a much greater risk.

Bourse software hourly chart of the ASX 200

Bourse software: hourly chart of the ASX 200

In this hourly chart of the ASX 200 from The Bourse, the market is sitting on the trend line at 4559. This provides a low risk entry point as a stop could be placed just below the trendline and the round number of 4550 to maintain a risk of around 15 points. This is not a guarantee that the market will rise from here, however if it doesn’t rise then you will know very quickly that you were wrong.

Low risk entry points can be used to dramatically improve your trading results. There are other low risk entry points that will be covered in future editions of the Trader Dealer Newsletter so make sure you look out for these!

If you haven’t had chance to subscribe to the e-newsletter you can do so on theTrader Dealer website.

Jeff Cartridge
Education Manager

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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