Traders globally have continued to push markets higher, although market volatility is rising as investors are becoming a little nervous over the strength of the markets since the start of the year, with the January performance the best in over a decade. Investors are turning their focus from the US earnings season across to Europe, where concerns are resurfacing about the debt crisis and the earnings season is well underway.
In today’s Analyst’s Eye we discuss the Yield Investment Strategy, identifying some potential investments and how you can protect your recent gains while still qualifying for future dividends.
The Australian market has continued its relentless rise (up consistently since last November) and is in bull market territory, up over 23% from its June lows and up over 14% from its November lows. There was a hiccup earlier in the week, but we are moving to new highs on the close.
US stock markets have held on to recent gains this week, hovering around all-time highs after recording their best January since 1994. The next target on the upside for the S&P 500 is still 1525 in the near-term. The S&P 500 is up 5.8% this year and is only 3.6% from all-time highs, while the Dow Jones is just 1.5% from all-time highs, hovering around the key 14,000 level. The CBOE Volatility index is up 4.7% for the week so far, indicating nervousness among investors after the recent spectacular run. Trader sentiment has been tempered by concerns over the eurozone debt crisis, after comments from the ECB president regarding the strength of the euro dollar which has a dampening impact European growth. Domestically weekly employment figures disappointed and a separate report showed productivity, the measure of employee output per hour, decreased at a 2 percent annual rate (down from 3.2 percent in the precious quarter), its worst performance in nearly two years. Over 300 S&P500 companies have reported, and of these 3 in 4 have exceeded earnings expectations, while 66% have beat on sales, with average earnings up 5% (compared to 1% in the previous quarter), according to Bloomberg surveys.
European stock markets paint a different picture and are down off their highs for the week, capping their biggest monthly gain since last July. These markets are still near their highest level in almost two years, as European companies began reporting earnings. The Europe Stoxx 600 is still at levels not seen since February 2011, but the index has retraced and is now only up 1.5% for the year, after recording its longest winning streak since 1997. The three benchmark indexes are all down for the week, with France, Italy and Spain leading the falls, as sellers stepped in after Spain lifted its ban on short-selling stocks. The Stoxx Index, a measure of the price of using options to protect against declines in the Index, edged higher again, after it surged 26 percent earlier in the week for its biggest jump since August 2011. Of the nearly 200 Europe Stoxx 600 companies that have reported just about half have exceeded earnings expectations, while 53% have beat on sales, according to Bloomberg surveys. The European Central Bank President Mario Draghi signaled policy makers are concerned about the euro dollar strength as it could dampen inflation and detract from the eurozone economic recovery.
Asian stock markets fell back from their highest levels in eighteen months with Japan leading the way, backing off 4-year highs. The MSCI Asia Pacific Index eased -0.3%. The move is on the back of resurfacing concerns over the eurozone debt crisis. The index is still up around 11% from its June lows, led by Japanese stocks on optimism that the new government will take the necessary steps to fight deflation. Of the 255 companies on the MSCI Asia Pacific index that have reported earnings so far this quarter, about half have exceeded profit expectations, while half missed sales projections, according to Bloomberg surveys. In Japan the market made its highest close since September 2008 this week, while in Hong Kong the market had its largest fall since November earlier this week, where the selling was due to renewed concern about the eurozone debt crisis.
The Chinese market has fallen for the first time in nine sessions, after it recorded its longest winning streak since last February and is up 24% from its 4-year lows in December. The gains this week were led by the technology and financial sectors which have lagged YTD, but the energy sector failed to participate, after China said its demand for coal is peaking. Earlier in the week this market formed a golden cross, where the 50-day is above the 200-day moving average, confirming the bullish move since late last year. According to Bloomberg, on the past five occasions in the past two decades that a golden cross has occurred, the market has jumped an average of 6.3% in the following month. Of note Tom DeMark, who made his name as the creator of indicators that show market turning points, said the Chinese market will retreat around 8 percent before resuming its up-move, as a surge in Chinese stocks has exhausted buyers.
The Aussie market is finishing the week higher and has now risen eleven of the past twelve weeks. The market is testing the 4965 level near-term. The market held above the 4870 level and is now hovering above the 4950 level and looks set to test levels not seen since mid-2008. Our market continues to rebound strongly from the November lows, on the back positive sentiment around the globe. The Aussie banks have continued higher in the chase for yield, but we have also seen money pour into industrial and resource stocks, as investors look for a turnaround in these sectors for 2013. We are moving into the local reporting season with Newcorp, Telstra and NAB reporting yesterday and Newcrest Mining reporting today. Retail sales figures disappointed, both in December (down -0.2%) and in the December quarter (up a miniscule 0.1%). The RBA said inflation remains benign at 2.25%, employment is expected to ease, the mining investment cycle is topping out and there are concerns where the economic growth will come from in the near-term. The unemployment figures came in slightly better-than-expected at 5.4%.
Key levels for the index next week will be 4880 and 5000, with 4930 the key short term pivot level. Volatility remains subdued and affords cheap protection as the markets are moving higher. Traders continue to be optimistic ahead of the Aussie reporting season, on the back of positive news flow regarding the state of the Chinese, US and European economies.
Protection is still 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 (earnings), China and the US (earnings). Monitor the US dollar for a guide to the future direction of commodities and equities prices.
Contact 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.
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