Online Stockmarket Trading Update

The Australian stock market was closed for four hours yesterday following a connectivity issue with its trading platform. The timing could not have been worse for the ASX and investors as well. The announcement from Europe of a significant solution to the Euro crisis happening during the period the markets were closed. This solution included a 50% haircut on Greek debt by bondholders, an increase in the European Financial Stability Facility to 1 trillion Euro via leverage and a plan to recapitalise weaker banks. Investors were caught out, unable to place trades during the four hour closure and when the market did reopen it was up by 2.5%.

While this was bad news for investors who were unable to trade during one of the longest outages in the ASX history, it was also bad news for the ASX. Chi- X is set to launch a second stock exchange in Australia on 31 October, just 4 days away. With competition clearly on the horizon a failure like this will make the entry for the new operator that much easier, with brokers, traders and investors more likely to consider using an alternative operator to place their trades. For investors the launch of Chi – X is likely to result in a much more competitive market environment and may lead ultimately to lower prices for transactions and data fees. Right now however, Chi – X is definitely the beneficiary of today’s ASX glitch.

The key to take away from yesterdays outage is, how well are you prepared for when a major catastrophe affects your trading? If the ASX exchange goes down like it did today, then there is no trading, but Chi –X will provide alternative pricing once they have completed their launch process.

Currency and futures trading was unaffected by the outage, can you access this using a CFD or Forex trading platform. Going long with the Euro, may have made up for some of the losses on your short positions in the ASX. Having access to a way to hedge your position is worth considering in the event a technical glitch occurs.

Other than a market failure there are many other technical glitches that can interrupt your trading. What happens if your internet connection fails, and is down for a period of time? How do you handle this, do you have a back up with a 3G wireless connection, or an account with another ISP? If you are not an active trader, this may be unnecessary, but do you have your broker’s telephone number on hand and be ready to give him a call in the event of an internet failure.

When I trade during the day I have had the internet or broker’s platform go down with an open position. All of a sudden I am trading blind, unable to see what the market is doing. If I have placed stops when I entered a position then I am protected against large losses. Sometimes I have not yet placed a stop after entering a trade and it is in this situation that it is important for me to ring my broker to place a stop order or exit the position completely. One thing to be aware of is that when there is a problem, the broker’s phones can be running hot. Make sure you are clear on what orders you want to place and do this quickly so the broker can move onto the next client. Internet disruptions certainly occur, but are fairly easy to navigate around with current technology and your broker’s phone number.

What happens in the event of a computer failure? An internet outage is usually overcome fairly quickly, but a computer failure can take days or weeks to rectify. Do you have a second computer with your trading software on it and a back up of your records? Not only may you be unable to place trades with your computer, it may affect your research or saved charts. A lot of time and energy goes into researching trading ideas, and it can be devastating to lose large amounts of work. Backing up your computer is one of those things that it is essential to do regularly. Do not put it off until it is too late. And once again your broker is only a phone call away and can help out when required.

Not all disasters are technical in nature. My father died this year and that had a major impact on my trading for a few weeks around the time of his death. I was also trading when the Christchurch earthquake knocked out all communication and power to my home, as well as having a massive psychological impact.

I was fortunate that my broker contacted me, and I was able to close out any open positions. And for the next few weeks I was extremely busy with clean up. The markets and trading were certainly not my first priority following this disaster. How do you handle major disruptions in your life? Do you back away from the markets, or have a backup plan in place when life throws you a curve ball?

Are you prepared for whatever disaster may disrupt your trading and investing? There is enough that can happen in the markets without external shocks impacting on your trading. Most people don’t plan to fail, they fail to plan. Make sure you have a plan in place in case there is an external event that may impact on your trading.

Globally traders were cautious this week, as sentiment was driven out of Europe, as they move to clarify their “comprehensive” plans to address the eurozone debt crisis. Many markets are still testing key overhead resistance levels from their recent trading ranges. Volatility remained high over the past week as the eurozone debt concerns continue to be in focus and the US earnings season rolled on.

Globally financial stocks continue to be volatile, with further downgrades this week, due to concerns over capital adequacy, but the news that the European Commission are meeting this weekend to develop a bank rescue package should help with the financial system crisis in the eurozone. There are still short selling bans in a number of European countries. There were also rumours during the week that Germany and France has agreed to an extension of the EFSF to EUR2 trillion, but this has since been dismissed.

US markets have eased back from key resistance levels at the top of their recent trading ranges, as the earnings reporting season rolled on. The tech sector has been sold down after disappointing earnings from the likes of IBM and Apple, and the financials were hurt by Goldman’s disappointing report. The earnings reporting season heats up next week with 40% of the S&P500 companies reporting. The Fed’s beige book troubled traders as the Fed presented gloomy forecasts, citing “uncertain” times for the market ahead.

Europe investors have been anxious over the sovereign debt situation and have been jumping at shadows, as rumours abound regarding the prospects of the EFSF and bank rescue plans. The eurozone summit to be held on the weekend will be the focus for the next few trading sessions, but from all reports traders may be disappointed with the clarity of the outcome of the “comprehensive measures” to resolve the crisis. Investors are continuing to show some caution, as they take profits off the table from recent gains.

Commodities remain a key focus and have been sold-down heavily again this week, after China after reported its annual GDP reading came in at 9.1% (down from 9.5% in the previous quarter). The GDP reading was seen as a negative near-term, but in the medium term it could point to some easing by the Chinese government going forward, and this will help commodities prices.

Copper prices have plunged -12 percent this week and were down -6 percent overnight, for their biggest single day collapse in a month, on fears of a double-dip recession and growing doubts that Europe will resolve its debt crisis any time soon. Crude-oil markets barely moved, after news of the death of Libyan strongman Muammar Gaddafi, though it could lead to an earlier-than-expected full restoration of Libya’s oil exports. Libya produced about 1.4 million barrels per day of mostly high value light sweet crude before the rebellion against Gaddafi broke out at the start of 2011. Gold prices have retraced this week, and fell -2 percent overnight for its biggest single day drop in a couple of weeks, hurt by technical selling and concern over whether European leaders can reach a deal to boost the region’s bailout fund.

Asian traders have been reacting to what is happening in Europe and the US as well, with growth sensitive stocks being hurt by the ratcheting down of the economic growth forecasts and the subsequent sell-off in commodities prices. The Chinese annualised GDP figures came in at 9.1%, down from 9.5% in the previous quarter and the Chinese market is now trading down at levels not seen since early 2009.

Our View For Australia

The Aussie market has backed off the top of its trading range this week, following on from the lead from the overseas investors. The recovery in the miners came to an abrupt halt this week, as commodities were sold-off sharply again, while the banks continue to hold on to their recent gains as we approach the dividend season. The S&P/ASX 200 hit the upper level of its trading range this week as we predicted last week, but has now retreated and the index is trading below its 50 day moving average.

We had a milestone anniversary this week, as it has been almost a quarter of century (24 years) since the 1987 October crash. The US market collapsed -23%, while the ASX fell -25% on “Black” Monday in 1987, and by the end of October the US market had retracted -23%, while the ASX plunged -42% and the equities markets traded sideways for the next three years.

The RBA has set the stage for an interest rate cut before the end of the year. Analysts expect a cut of 25 basis points at the next meeting on Melbourne Cup day in November. An interest rate cut would be good for the Christmas trading period.

Last week we suggested that the bulls and the bears would be wrestling for control of the markets this week, and this has proven to be the case. Going forward the struggle is set to continue into next week. The Aussie market is trading at its 50 day moving average, around 4150 this week, and the this level looks to be a key pivot level as the market has found resistance around 4300.

Investors should be looking to utilise options strategies to protect themselves in this type of market. There continues to be issues over eurozone bank solvency and as traders await some detail on the “comprehensive measures” to address the eurozone banking and sovereign debt crisis, which could be forthcoming at the EC summit this weekend.

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 currently trading at 4155 having backed off the 4300 level this week. Key levels for the index next week will be 4300 and 4080, with 4150 the key pivot level. Be prepared to use options to protect your capital and reduce your risk. Expect to see further volatility going forward as the market participants look for some confirmation on the near-term direction of the market.

Use options strategies to reduce your risk 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.

We regularly update you on trade recommendations so 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 me on 1300 610 024 for further information.

By Michael Hevern begin_of_the_skype_highlighting     end_of_the_skype_highlighting
Head of Research

Globally markets continued to “melt-up” this week, but many markets are testing key overhead resistance levels from their recent trading ranges. Volatility continues to be high over the past week as the eurozone debt concerns continue to be in focus.

Globally financial stocks continue to be volatile with a number of downgrades this week due to concerns over capital adequacy, but the news the European Commission is considering a bank rescue package which should help, if we can get some detail about the action plan near-term. There are still short selling bans in a number of European countries.

US markets have continued with their “melt-up” but are now testing key resistance levels at the top of their recent trading ranges. The tech sector continues to outperform, with the Nasdaq up 12% from it’s recent bottom, and the earnings season gets underway. The markets do not appear to want to sell-off at the moment but this will be tested in the next few trading sessions, as the earnings reporting season gets underway. The minutes from the recent Fed meeting that announced “operation twist” revealed two members believed that the weak economic conditions warranted even stronger policy action.

Europe investors cheered the news France and Germany would work to implement comprehensive measures to address the eurozone banking and sovereign debt crisis by the end of the month through the recapitalisation of the banking sector and a more robust eurozone rescue fund, the European Financial Stability Facility (EFSF). The EFSF bailout package received the final vote of approval from Slovakia this week. However investors are beginning to show some caution, as they take some profits off the table from recent gains, and while they await some detail on the “comprehensive measures” to address the eurozone banking and sovereign debt crisis.

Commodities remain a key focus, particularly for our markets. Gold is still hovering around the $US1,650 level, while crude-oil has bounced to the $US85 level this week. Copper, which is the true barometer of the global economic activity, is attempting to find support above the $US3.00 per pound level. The US dollar index has pulled back strongly in the past couple of weeks after hitting the key 80 point resistance level and its performance will be key for equities and commodities near-term.

Asian markets have been reacting to what is happening in Europe and the US as well, with the Japanese market continuing to bounce off its lowest level since April 2009, while the Chinese Shanghai Composite is testing the downtrend that has been in place since mid—July, but it is still hovering around its 2-year lows.

Our View For Australia

The Aussie market melt-up continued this week, following on from the lead from the overseas investors. The recovery in the miners continued and the banks held on to their recent gains. The S&P/ASX 200 index is trading above its 50 day moving average and has about 100 points until it hits the upper level of its trading range.

The improving employment numbers helped sentiment, along with housing data that showed that the housing sector is stabilising as talk of an interest rate rise subside, as the number of home loans approved in August rose 1.2 percent, which was the fifth straight month that housing finance commitments have risen.

The Carbon tax was passed by the Lower House, as the Gillard government’s carbon tax bills gained approval, however the uncertainty for business has yet to be fully resolved, the Opposition is adamant that they will repeal the bill if/when they resume office. The Clean Energy Future bills, which are promoted as putting the economy on path to a lower-carbon energy future, passed 74 votes to 72. The bills also included a $300 million boost for the troubled steel industry, with support from independents and Greens MP Adam Bandt.

We are in a traders market and the bulls and the bears will be wrestling for control of the markets next week. The Aussie market has managed to trade above its 50 day moving average, around 4150 this week, and the 4150 looks to be a key pivot, but watch for resistance around 4275 to 4350.

Investors should be looking to utilise options strategies to protect themselves in this type of market, as there continues to be issues over eurozone bank solvency and as traders await some detail on the “comprehensive measures” to address the eurozone banking and sovereign debt crisis.

Traders and Investors should remain attuned to the news from overseas particularly from China, Germany and the US regarding their economic growth and debt issues, and 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 currently trading at 4225 having broken through the 4150 level this week. Key levels for the index next week will be 4330 and 4080, with 4150 the key pivot level. Be prepared to use options to protect your capital and reduce your risk. Expect to see further volatility going forward as the market participants look for some confirmation on the near-term direction of the market.

Use options strategies to reduce your risk 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.

We regularly update you on trade recommendations so 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 me on 1300 610 024 for further information.

By Michael Hevern
Head of Research

Globally markets started the week on a sour note, but gradually gathered steam in another-end-of-month rally. Today also marks the end of the quarter and traders will be rejoicing (not for any good reasons however, as it has been one of the toughest quarters since the GCF). Volatility has been exceptional over the past few months and there does not appear to be any respite in sight.

It has been all about “risk off” of late, and commodity prices have been the big story this month, with gold prices confirming the double top and now trading all the way down to its 200-day moving average around $US1,600, having started the month at all-time record highs of $US1,920. The sell-down in commodities has been across the board, as traders who are all highly leveraged are being forced to liquidate due to the excessive volatility and the increased margins in these markets of late. The falls have been led by copper prices which are seen as the true indicator of the underlying world economic condition. Copper plunged -5.6% in a single session this week, and this comes after a -12% fall last week and a slump of over -22% for September. Crude oil has also sold off heavily and is down over -27% since its April peak and is hovering around $US80 per barrel.

Globally markets have all followed the same script, with traders on edge as the debt contagion situation in Europe remains unresolved. The big contention currently is over the proposed expansion of the European Financial Stability Facility (EFSF).

The selling pressure on the markets has come as eurozone leaders remain indecisive over the changes to the EFSF eurozone bailout fund, after leaders raised concerns that they would demand collateral as a precondition for participation. The changes need to be ratified by all 17 eurozone members to take effect, but the German parliament has now voted for the change, which is positive. The split between the European ministers over whether the size of the EFSF will be increased from EUR440 billion from EUR250 billion has kept traders on edge.

Globally financials remain under pressure due to concerns over capital adequacy and now the European Commission is even considering a financial transactions tax, which could raise up to $80 billion. There are still short selling bans in a number of European countries.

US markets have closed down 7 of the past 10 weeks and there looks to be some window dressing for the end-of-quarter. In Europe the market falls have been almost double those in Australia and the US, and many of these European markets look broken, similar to the days of the GFC. Regulators must act on implementation of the EFSF sooner rather than later, otherwise the global financial system could cease up one again, as it did during the GFC.

Asian markets have also been reacting to what is happening in Europe, with the Japanese market reaching its lowest level since April 2009, and the Chinese Shanghai Composite trading at 2-year lows as well.

Fears over contracting Chinese growth are spooking global markets and we are seeing mining stocks being dumped as they are heavily dependent on the Chinese imports for their earnings. Traders appear to be closing their exposure to mining stocks ahead of the Chinese manufacturing PMI data which is due out on Friday night.

Our View for the Australian Market

The Australian market also started the week under selling pressure. However Australian investors and fund managers have held their nerve as the week progressed, despite the caution and volatility being exhibited by overseas investors.

The materials stocks in the Aussie market have been under considerable selling pressure this week, but the financials have started to offer some support. Remember it’s the end-of-quarter today and there is shortened trading week in some states next week.

We are definitely in a trader’s market, and the bears remain in control. The Aussie market has managed to trade above the key psychological level of 4000, but the 4080 mark looks to be a key stumbling block. The market has suffered from the severe falls in commodities prices, as a number of commodities have continued to crash through their key levels.

However we did get the end-of-quarter recovery we were looking for, even though it was a little delayed. The S&P/ASX 200 index is attempting to find support short term, but there is resistance around 4080 and then 4200, so if we break down through the 3850 level, then the next lower key support level is in the 3760 area, which the market reached in our August “flash crash”.

Stock prices will to continue to be under pressure and experience volatility near term, as long as the index holds below the 4250 level. The US dollar is the key, as it has been appreciating against all the majors in the past month and this has proven a headwind for equities and commodities alike.

Local traders also need a resolution to the EFSF. The successful German parliament vote overnight means that 10 of the 17 EU nations have now voted on the package. There is a note of caution however, as the eurozone crisis is far from resolved. Greece still faces the real prospect of a default or a restructuring, and many observers have questioned whether the EFSF has enough resources to prevent contagion if the Greek problems spread to the bond markets of Spain and Italy. The EFSF is starting to clear hurdles, but many policymakers remain firmly against expanding the facility beyond the current EUR440 billion, as German and French leaders fear that this would undermine their triple-A credit rating.

The Australian government is handing down a report today which is expected to cast a shadow over when the budget will return to surplus. Interestingly the government is citing the poor performance of the share market for its shortfall in tax receipts, as revenue from capital gains tax has diminished over the past year. Also the MMRT mining tax will be in the spotlight again next week, as some parties are talking about extending the tax to the gold miners.

Investors should be looking to utilise options strategies to protect themselves in this type of market, as there continue to be issues over eurozone bank solvency and the agreement over EFSF bailout fund, so be nimble when trading and manage your risk.

Remain attuned to the news from overseas particularly from China, Germany and the US regarding their economic growth and debt issues. China will report its PMI manufacturing data tonight, while the US releases its ISM manufacturing data on Monday and the monthly Non-Farms Payroll employment data on Friday.

The S&P/ASX 200 is currently trading at 4010 having again found tentative support at the 3855 level this week. Key levels for the index next week will be 4180 and 3850. Be prepared to use options to protect your capital and reduce your risk.

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. 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.