Online Stockmarket Trading Update

Stock markets have generally drifted lower this week, but the US markets remain near all-time highs and the Japanese market is up over 50 percent from its November lows. In Europe the markets have suffered from the resurfacing of concerns over contagion of the eurozone debt crisis and ECB comments about the risks to the economic recovery in the eurozone.

In today’s Analyst’s Eye we discuss Doctor Copper and how you can use copper price as a leading indicator for the near to medium term performance for the ASX and US equities markets.

US stock markets have recovered from their biggest sell-off in a month, on the promises from central banks to keep the taps running at full throttle. The Dow Jones and the S&P500 indexes remain near all-time highs again. Traders have focused on news that central banks are continuing with their stimulus for the foreseeable future, which offset the news that weekly jobs data disappointed as companies boosted employment by 158,000 workers in March (forecasts called for a 200,000 gain). The data came ahead of the monthly non-farm payrolls report from the Labor Department due Friday.

The ISM index of US non-manufacturing businesses, which covers almost 90 percent of the economy and spanning industries ranging from utilities and retailing to housing, health care and finance, fell to 54.4 in March (down from 56 previously – readings above 50 signal expansion).

US companies begin releasing their first-quarter earnings next week and the monthly Non-Farm Payrolls employment report is due out on Friday. A Bloomberg survey says consensus is that the report will show employers hired a net 195,000 workers for the month.

European stock markets fell again this week, recording their biggest 2-day slump in over four months, despite traders starting the new month on a positive note. ECB officials have kept the benchmark interest rate at a record low of 0.75 percent, while the BoE left their benchmark interest rate at a record low of 0.5 percent. Sentiment has been dampened by comments from ECB President Draghi who sees risks to the eurozone’s economic recovery and warned that monetary policy cannot compensate for lack of government action. Traders are also trying to come to terms with the new paradigm of the conditions of the Cyprus bailout which is setting a precedent for other eurozone lenders in future. The losses have been led by the commodity-related sectors, as metal prices continued their decline, also eurozone manufacturing output contracted less than initially estimated in March as the gauge of manufacturing declined to 46.8 last month (down from 47.9 in February).

Asian stock markets have generally been weaker this week, with the exception of Japan, as investors digest the aggressive BoJ stimulus measures. The Chinese and Hong Kong markets have had a shortened trading week, while the South Korean Kospi index has fallen the most in four months, as the risk of conflict with North Korea escalated. In Japan the exporters and real-estate developers led the advance. The recovery came after the central bank (BoJ) said it will double monthly bond purchases in a bid to reach 2% inflation in two years. The BoJ has streamlined its asset purchase programs, temporarily suspended a cap on some bond holdings, dropped a limit on debt maturities and said it will buy 7 trillion yen ($US74 billion) of bonds a month. The Japanese market has led Asia on the back of speculation the nation will deploy more stimulus and amid signs of improving US economic data. The Nikkei is the best performing developed market benchmark index this year and is up 52% since its November lows.

The Aussie market has exhibited increased volatility again this week and has continued to back off 4½ year highs. The ASX is closing down for a third week, after having a consistent string of gains for fourteen of the past nineteen weeks. The All Ords has now slumped through the 4950 level.

The ASX200 market is down 1.5% this week and has broken through the 4930 level near-term. The main drivers have been the news out of Japan regarding stimulus, the possible eurozone contagion and the US employment and corporate earnings.

The ASX market has suffered despite starting off the new quarter on a positive note. The RBA left interest rates on hold this month, while retail sales again surprised to the upside. The government has finally revealed its superannuation changes, as people with over $2 million in superannuation will be forced to pay tax during the pension phase, rather than receiving the payments tax-free, under the new changes. Currently people pay no tax on gains in their super once they are drawing down the balance as a pension. Treasurer Swan says this tax exemption would be removed for superannuation assets that supported an income stream of more than $100,000.

Key levels for the ASX200 index next week will be 4850 and 5000, with 4930 the key near term pivot level. Volatility is picking up, but is still relatively cheap and affords cheap protection for your portfolio. We have broken the support around the 50 day moving average, with traders choosing caution as we break the key 4930 level. The 13 day moving average is going to provide key resistance in the short-term.

ASX sectors have traded mixed, with the materials sector again being the major drag on the market this week, down another -3.8%, while the energy sector joined in and was down -3.6%. The industrials sector also weighed, down -2%, while there were some positives with the property sector up 2% and the telecoms up 0.7%.

Protection is still relatively cheap and investors can have cheap insurance for their portfolio and could look to put their money to work, while reducing their risk by using options and warrants strategies.

Remain attuned to the news from overseas, particularly from the eurozone (contagion), China (stimulus) and the US (employment and corporate earnings). Monitor the US dollar for a guide to the future direction of commodities and equities prices.

Contact me at D2MX Advisory on 1300 610 024 and we can help you trade, using a number of strategies that will give you the tools to navigate this market and help you improve your returns on investment.

Michael Hevern
Investment Adviser D2MX Advisory

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.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.