The Aussie market continues to melt-up, rising over 5 percent from the start of 2012, and volatility is contracting as investors appear to be comfortable with the current state of the market.
The bulls remain in control, and trading volumes have been steadily improving throughout the month. The US markets are set to have their best January since 1997, and their reporting season continues to beat expectations. Financials are having a particularly stellar run, and even home builders are joining in this bullish move and are up 50 percent in the past 3 months.
Globally investor sentiment has been boosted by successful eurozone bond auctions with borrowing costs pulling back, despite the recent S&P downgrade of eurozone nations and the EFSF bailout fund. However the views for 2012 growth from the World Bank and the IMF have been ratcheted down, with the IMF suggesting that if the eurozone does not resolve its debt issues, the global economy could be in for a “1930’s moment”.
Greece has been the focus in the eurozone this week. The European leaders and Greek bondholders are still in negotiations over the Greek bailout, where Greece has to write down the country’s debt by EUR100 billion. A resolution is essential, as Greece must repay EUR14.5 billion of maturing debt in March to avoid a default.
Commodities have had another good week with copper outperforming, up over 12%, and gold is up 7% for the year. Iron ore and energy stocks have also jumped into the New Year. Many Asian markets are closed this week for the Lunar New Year.
The Aussie market has once again found medium-term support around the 4000 level and appears to be setting up for a retest of the multi-month highs around 4350. This week we found support around the 4100 level and we are now trading above the 50 day moving average, which sits around 4150. Many of the S&P ASX sectors are looking to test their 150 day moving averages (MAs) near term, which could give some pause, as these levels have held prices in check for the past six months. The Telecoms and Utilities sectors are in sustained uptrends, while the Financials and Industrials sectors look set to break into a new uptrend.
The next dividend season begins in February, so you can look to boost your yields through options strategies. Last week we highlighted Toll Holdings for a dividend yield play and the stock is now up 10% in 5 days. The MDS Financial Advisory Services team can help with these trades. Call me on 1300 610 024 for further information. Investors should also be looking to utilise options strategies to protect their positions, as options are a relatively cheap form of insurance, given the falling volatility of late.
Remain attuned to the news from overseas, particularly from the eurozone, Greece and China in relation to easing policies, and the US with their earnings season. 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 melting up, with the index currently trading at 4254 and above the key pivot level around 4180. Key levels for the index next week will be 4180 and 4320, with 4230 the key pivot level.
By Michael Hevern
MDS Trading Desk
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