Stock markets sold-off sharply this week on the back of plunging commodity prices, with the gold price plunging more than it has in decades, and after economic growth forecasts were marked down.
Global markets suffered as recent Chinese economic data sent shivers through the resources sector. GDP growth unexpectedly slowed to 7.7% year-on-year in the 1Q of 2013, lower than the 7.9% in 4Q 2012 and lower than the 8% forecast. Industrial production rose 8.9% in March from a year earlier (less than forecast).
Trader sentiment was weighed down by weak commodities prices and as the International Monetary Fund (IMF) cut its global growth forecast, trimming its prediction for this year for a fourth consecutive time, saying the global economy will expand 3.3% this year (down from 3.5% forecast in January). The IMF urged European policy makers to use “aggressive” monetary policy as a second year of contraction leaves the eurozone recovery lagging behind the rest of the world.
The US markets have retreated from their new all-time highs, on the back of disappointing corporate earnings. Asian markets are trading at 3-week lows and even the Japanese market has retreated from its 55% gains since its November lows, while in Europe the markets are trading at 4-week lows and are looking vulnerable, with the Europe Stoxx 600 down -3% for the week.
In today’s Analyst’s Eye we discuss how you can short stocks with limited risk. Caution is advised in the April-May period, especially given the spectacular run markets have had this year. The S&P 500 declined -7% on average from May to August in the last three years, according to UBS data.
The Aussie market is hovering not far from its lows for the year, as the materials sector was smashed after commodity prices plummeted, led by the falls in the gold price as the margin callers came a knocking.
The market is just holding above its recent 4880 low-point, but if this support breaks it will confirm a change in trend. Once again the All Ords has been unable to hold above the key 5000 level. The ASX200 market is down around -2% this week having retraced from the 5000 level. The main driver has been the news of slowing global growth which triggered a sell-off in commodities and in any equities related to the resources sector.
Key levels for the ASX200 index next week will be 4880 and 5000, with 4930 the key near term pivot level. Volatility is rising but remains relatively cheap, affording cheap protection for your portfolio. We have broken below the 13 and 50 day moving averages, and these now have the potential to act as resistance for the any positive move going forward.
Defensive ASX sectors have traded higher this week, with the telco and property sectors breaking to new highs, while the materials and energy sectors have been smashed, with the materials breaking below multi-year lows.
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 (sovereign debt), China (stimulus) and the US (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.
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.