The bulls are wrestling control of the markets again, particularly in the US as the earnings season continues to beat expectations. The Aussie market remains tantalisingly close to its 9-month resistance level.
US markets are on track to record one of their best weekly performances for the year. US stock markets continued to rebound overnight, as the earnings season continues to be robust and the “Bernanke Put” remains in play. The Federal Reserve policy-setting committee reaffirmed its commitment to keeping interest rates low at least through late 2014, and later Chairman Ben Bernanke said the Federal Reserve would not hesitate to support the economy with more easing if required, through buying more long-term bonds as in Operation Twist which is scheduled to finish in June. Economic news has been mixed, with manufacturing reports indicating a slowing in activity and the weekly jobs data somewhat disappointing. The US earnings season continues to surpass forecasts, with Apple reporting a doubling in earnings for the quarter and its market capitalisation surged by nearly $US50 billion in a single session.
Eurozone markets have managed to drift higher this week, after the Stoxx Europe 600 index managed its first higher weekly close in 5 weeks. The drift higher has come despite a backdrop of negative news, but the jury is still out with the eurozone markets, as they have bounced but they are now testing key resistance, around their 50-day moving averages. The German market broke down to 4-month lows early in the week, after a preliminary reading of the German manufacturing purchasing managers’ index by Markit showed business activity contracted at the fastest rate since 2009, however sentiment recovered as the week progressed.
The French market has recovered from earlier losses, sustained after a preliminary vote for their upcoming elections saw Socialist candidate Francois Hollande advance to the next round. Hollande is seen as less committed to fiscal austerity than the incumbent President Nicolas Sarkozy. France will face an election on May 6.
In London, market gains have been capped after data showed that the British economy unexpectedly slipped into recession in the first quarter. Overnight the S&P Ratings Agency downgraded Spanish long-term credit rating to ‘BBB+’ from ‘A’.
In Asia key markets are drifting, but are holding at or above their 50-day moving averages, with the Hong Kong market outperforming. The Chinese market held on to recent gains, despite Chinese data showing April manufacturing activity continued to contract, as the HSBC preliminary “flash” reading of China manufacturing Purchasing Managers’ Index showed that activity improved in April from March, but remained below the threshold of 50, indicating a contraction. Traders were cautious ahead of some key central bank policy-setting board meetings in the US and Japan, and the French pre-election. Asian traders continue to bank on the hope that the Chinese government will lean towards monetary easing in the near-term.
In Australia the market continues to drift higher, as stocks have benefited from the positive sentiment overseas. Defensive stocks are leading the way, with Telstra at 2-year highs and the Healthcare sector pushing higher, but the materials sector continues to underperform. Banking stocks are pushing higher into their dividend and reporting season, which begins early next month. Typically the market should melt-up in the last week of the month and into the start of the new month, and at this stage it is going to plan.
Commodity prices have again been trading sideways this week, as the US dollar has eased again. Crude-oil prices are hovering around the $US104 level and copper has again been unable to trade above $US4.00 and is holding below its 200 moving average support around $US3.60. Gold prices have again found support around $US1,640.
The Aussie market has held above its 200 and 50 day moving averages, and is still testing its 9-month resistance level, around 4380 again. On the S&P/ASX 200 the 4280 level is now the crucial support level and 4400 is the key level on the upside. Stocks have effectively been drifting higher as we move into the bank reporting and dividend season, but we need the materials sector to participate for the market to reach new highs.
Traders should be looking to protect their recent profits and reduce their risk by using options and warrants strategies. In this week’s Analyst’s Eye we discuss using Warrants to Boost Returns on Dividend Paying Stocks. The D2MX 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 and warrant strategies to protect their positions and profits. Options are a relatively cheap form of insurance, as volatility remains low, and you can also leverage yourself for breakout trades as they occur.
Remain attuned to the news from overseas, particularly from the eurozone and China in relation to easing policies, and the US, as their markets again approach their multi-year highs. Monitor the performance of China and the US dollar for a guide to the future direction of commodities and equities prices.
The S&P/ASX 200 index is currently trading at 4368 and is holding above the key 200 day moving average. Key levels for the index next week will be 4280 and 4430, with 4300 the key short term pivot level.
By Michael Hevern
D2MX Retail Trading Desk
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This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.