Our market has begun the year by drifting higher, with positive leads from overseas markets, and particularly from the US.
The Aussie market finished the year in the doldrums, down nearly 16 percent for 2011. We now have had two consecutive negative yearly performances, which we have reviewed in more detail in today’s Analyst’s Eye.
Our market appears to have found some short-term support, after the Santa Claus Rally failed to materialise. Once again we found support around the 4050 level and we are now trading above the 50 day moving average, which sits around 4150. Towards the end of last year we described the “line in the sand being around the 4150 level, which remains significant as we trade into the end of the year”, and that “the 4180 pivot level is crucial in the short term”. The 4180 level remains the key pivot level for our market and medium-term resistance sits around 4380.
The bulls have been gaining early control this year. Trading volumes are still dismal, but are expected to pick up from next week.
US investors have led the positive start to 2012 as their earnings season gets underway. The financials sector has had a particularly amazing start to the year with some of the major banking shares up over 20 percent, including Bank of America and Citigroup.
Investors should be looking to utilise options strategies to protect their positions. Options can also be used to protect your profits and manage your risk in this type of market. We will continue to get surprises this year, like QBE’s profit downgrade yesterday, and options can be used to protect you in such situations.
Remain attuned to the news from overseas, particularly from the EU, China, 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 up 2% so far this week. The index is currently trading at 4193 and is trading just above the key pivot level around 4180. Key levels for the index next week will be 4080 and 4280.
Use options strategies to reduce your risk in these uncertain 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. Call me on 1300 610 024 for further information.
By Michael Hevern
Head of Research
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