Posts Tagged ‘investing in shares’

Investing in 2013 (continued): Part 9 – Stock Trading Tips for All Types of Market Environments

Friday, January 25th, 2013

Last week we wrote about Investing in 2013 suggesting that 2013 promises to be less challenging than 2012. Given there is still plenty of money on the sidelines and that the RBA cash rate is expected to fall even lower than the current 3 percent, the share market is a logical avenue to achieve better returns than the dwindling cash rate. And the markets pushed even higher this week.

Yield and capital growth will be a recurring theme again this year. In today’s article we do a top-down analysis of the Australian market as 2013 gets underway in an attempt to assess what may be ahead for us in 2013.

Australia in 2012

The Aussie market rebounded strongly in the first quarter of 2012 and again in the latter quarter of the year. The gains were led by the stellar performance of the banks and other high yielding sectors throughout the year and were eventually joined by the materials and industrials sectors, with money moving from the sidelines as the RBA cash rate fell to 3.0 percent.  All in all many investors will be ruing not participating in the eventual returns in equities for the year, but even as late as the end of November the ASX was looking at subdued returns for the year.

20130118_CHART_2012_XJO
CHART: ASX200 Performance for 2012

2013 has begun with a bang as investors, who have been heavily weighted in cash over the past couple of years, scramble to get on board the equities train. The ASX 200 has jumped 3.5% year-to-date (YTD) and is up a whopping 11% from its November lows (refer to the chart below).  We may see the market trade even higher near-term if the market does not consolidate which is what the bulk of the retail investors are waiting for. 

There is an old adage about the market in that it will go in the direction that causes most pain to the vast majority of investors. At the moment it is very painful for those investors who continue to sit on piles of cash as the share market runs away.

20130118_CHART_2013_XJO
CHART: Recent Market Performances

Commodities

The Australian economy is heavily dependent on the commodity cycle, so let’s check out what’s happening with commodities.

Commodities had a roller coaster ride throughout 2012. Gold, silver and copper prices shone, but aluminium and crude-oil prices underperformed. Crude-oil prices actually finished in the red for the year, as illustrated in the chart below.  Base metals had another tough year, weighed down by the slowing economic growth in China.

20130118_CHART_2012_COMMODs
CHART: Commodity Price Performance for 2012 (and 2013 YTD Moves)

Iron ore was a major driver for the materials sector on the ASX, with spot prices ranging from over $US140 down to below $US90 and then recovering over 60% from their September lows, to once again trade over $US150. Expect iron ore prices to drive our materials sector again this year.

This chart also illustrates that commodity prices have begun 2013 with continued momentum.

Gold is holding its long-term uptrend as long as the $US1,600 support level holds, the price should be support by all the central bank easing that is happening world-wide. Copper has been crawling higher in the past eighteen months and the 320 level needs to hold to support the current drift higher.  Silver has been crabbing sideways for the past couple of years and looks set for a major move medium-term.  Crude-oil is trapped within a range between $US80 and $110, with $US100 the key pivot level this year.

The positive trader sentiment has continued into 2013, as seen by the green bars on the above chart.

Investment Themes For 2013

Investors will need to be nimble again this year, in managing their portfolio and trading positions. “Buy and hold” has not worked in the past few years, resulting in investors having to become more active.

Next week we will analyse the market by sector and identify some interesting trends.  If you can’t wait till next week then request the bonus below, which also highlights investments themes and how to invest for 2013.

Bonus

We have compiled a Special Report on Investing in 2013, where we cover:

• Evaluation of the Australian market and what to expect in 2013.
• Evaluation of commodities prices.
• Top-down sector analysis on the Australian market.
• Sectors to focus on this year.
• Investing for Yield and our view on interest rates.
• Investment themes
• How to survive 2013

For a free BONUS report: email  advisory@d2mx.com.au... or call 1300 610 024.

You can also request the trading results from our Advisory service, which performed well in excess of the overall market return in 2012.

For trade ideas and recommendations on how to trade in this market, sign up for a free trial of the D2MX Daily Trading Report, which provides a daily serving of insightful market analysis from the D2MX Advisory team, including:

• Trade ideas and strategies
• Dividend enhancement strategies
• Market scans to watch
• International market analysis, and
• Highlights from the S&P/ASX 200

To request an obligation-free trial, call 1300 610 024 or email advisory@d2mx.com.au.

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

Michael Hevern
Investment Adviser D2MX Trading

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.

2011 Market PerformancesMarket-Performance-2011
CHART: Market Performances in 2011

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Boosting Dividend Yield Using Warrants: Part 2 of Warrant Trading for All Types of Market Environments

Friday, April 27th, 2012

Market cycles drive portfolio performance and one of the more reliable recurring cycles in the market is the cycle that is driven by banks and their dividend payment cycles. Banks tend to outperform the overall market in the six weeks prior to going ex-dividend, and as the bank dividend season is fast approaching, we thought it timely to discuss how you can boost your dividend yield by trading bank shares using instalment warrants.

Instalment warrants allow investors to generate higher franked dividend income compared to a direct share investment and can be traded in your self-managed super fund (SMSF).

Instalment Warrants

Instalment warrants have been around for a while and are traded on the ASX. Instalment warrants are a geared investment which give the investor all the benefits of share ownership, including access to the full cash dividend amount and the associated franking credits. SMSF investors can gain the economic benefit of the share ownership for a fraction of the cost of purchasing the underlying shares outright.

Instalment warrants have a six letter code, eg. ANZIOW. The first three identify the stock, the fourth letter the warrant type (I=Instalment), the fifth letter the issuer, and the last letter signals the series (or leverage).

Instalment warrants are a type of warrant listed on the ASX:

  • They are a leveraged trading instrument providing investors with upward of 30% gearing on the underlying asset, while having all benefits of share ownership.
  • Investors can choose their level of leverage based on their own risk profile, as there are a number of instalment warrants (or leverage levels) available for each stock.
  • Before trading instalment warrants , traders need to read and understand the ASX Understanding Warrants Booklet and then sign the Warrant Agreement form. Speak to your broker or contact us at D2MX on 1300 610 024.

The key features of instalment warrants include:

  • They are instruments traded and regulated on the Australian Securities Exchange.
  •  You can trade long and participate in the dividends and franking credits.
  •  There are NO margin calls.
  •  Instalment warrants are an efficient way to trade dividend-paying stocks to boost yields.
  •  No credit checks or approvals required.

The main benefits of trading instalment warrants on dividend-paying stocks:

  • Increased dividend income and franking credits
  • A lower capital outlay is required to achieve the same dividend income.
  • Can offer potential tax benefits.
  • The maximum loss is limited to the initial outlay.
  • Can be traded in your Self managed Super Funds (SMSF)

The risk of trading instalment warrants:

  •  As with any leveraged investment product, the price of the underlying asset may fall prior to the time of sale (or even prior to the ex-div date).
  •  The value of the instalment warrant could fall or be significantly less valuable on its maturity date, or may expire worthless, resulting in a total loss of the initial monies outlaid for the trade.
  • Leverage is a two-edged sword: it enhances any gains but would also increase any loss sustained.

Instalment Warrant Terminology
The instalment warrant is made up of three parameters:

  • The Instalment Value (the prices at which it trades)
  • The Final Instalment Price (the loan amount)
  •  The Maturity Date (the date on which the Instalment ceases to trade or is rolled)

Case Study

Sam wants to trade ANZ for the dividend and franking credits, and is looking to boost her returns. She plans to trade ANZ on 13th of April 2012 when ANZ is trading at $23.00 (and Instalment Warrant ANZIOW is trading at $13.40), and ANZ is expected to go Ex-div $0.65 on the 12th of May 2012.

Note: This case study is general in nature and does not incorporate any specific tax or personal circumstances of the investor.  Please seek any tax advice from a qualified taxation professional.

The Instalment Warrant and Share Trade Comparisons
The trade needs to be held for 45 days to qualify for the franking credits, and the calculations are done assuming no capital gain – that is assuming ANZ pulls back to our original buying price of $23.00, then the trade calculations are as follows (assuming the trader’s tax rate is 46.5%):

So if ANZ pulls back to its original purchase prices after the 45 day holding period and the position is closed, there would be no capital gain on the holding, but Sam would get to collect $2,826, plus $1,174 worth of franking credits for a grossed up yield of 4% in 45 days, if she trades ANZ using shares.

However if Sam traded the ANZIOW instalment warrant then she would collect $4,850 in dividends, plus $2,015 worth of franking credits for a grossed up yield of 6.9% in 45 days, if she trades ANZ using instalment warrant (note if ANZ was trading at $23.00 again, there would be a funding cost of $0.10 cents per share part of which would be tax deductible).

Of course if ANZ is trading above the purchase price after the 45-day holding period, then there would be an additional capital gain (and a capital loss if ANZ was trading below $23.00).

Funding Cost Calculation

In order to calculate the amount you are paying in funding costs, use the following calculation:

Funding Cost = Share Price – Final Instalment (loan amount) – First Instalment Price (initial outlay)
                            = $23.00 – $10.00 – $13.40 = -$0.40.

The Trade

If you want to take advantage of the bank dividend season, then instalment warrants are an excellent way boost your yield as shown in this Case Study.

Contact me at D2MX on 1300 610 024 and I can help you trade using instalment warrants to boost your returns. Each instalment warrant has a PDS document which details all the features of the specific warrant.’

Warrant Trading for All Types of Market Environments Series

Part 1 – Shorting With Limited Risk Using MINIs 
Part 2 – Boosting Dividend Yield Using Warrants 

Michael Hevern
Investment Adviser
D2MX Retial Trading

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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Trading For Profit

Friday, March 23rd, 2012

Trading for profit – isn’t that what we all endeavour to do? Last week in his article “Managing Trading Stress” Jeff talked about the importance of managing stress in your trading life. This week we elaborate on trade preparation.

As traders we apply our knowledge and skills to profit from trading. Trading should be treated as a business, and as such there are a number of rules and conditions that you need to abide by in order to ensure that your trading is done systematically and efficiently, without emotion.

Some of these rules include:

1. Planning the trade
Before the trade is initiated have a written plan specifying the entry and exit conditions, the dollars you are prepared to put at risk for the trade, and how you will manage your profits/losses. Note how you expect to exit the trade – whether it’s a staged exit to protect profits as the trade goes in your favour, or when the trade goes against you, necessitating you taking a loss. Just remember that as a general rule, the first loss is often the cheapest and having a clear exit strategy before you enter the trade can save you a lot of stress.

2. Keep consistent and accurate trading records
Trading should be treated as a business, therefore you should be able to measure its success regularly by reviewing your records (depending on your investment time horizon).

3. Journal your trade
Note the entry and exit parameters before you enter the trade. Write down the trading signals, the ideas behind the trade and the emotions about your trade. Journal comments on the trades can be an excellent reference, if and when you want to evaluate your trading success/failure.

4. Remove distractions
If you are trading part-time and are called away to meetings or phone calls, just consider that there are full-time professional traders who are concentrating on taking your money. Set aside time for trading, including preparation time, and remember that the trading plan, journal and record keeping are essential in any business venture.

5. Be systematic
Select your trading system or systems. You can run a number of systems concurrently that allow you to profit in different market conditions. An example of concurrent systems would be using a trend trading system, with a breakout system and a mean reversion system. Master your own systems, don’t tinker with indicators of a system that you’re trading, and back test before you start putting your capital at risk.

6. Keep your losses small
Understand your trade expectancy and know your trade risk before you enter the trade. When all is said and done the only parameter that you can control in any given trade, is your risk. It may be worth reviewing my previous article, Mind the Gap: Trading Risk with Options Versus CFDs at this point.

7. Staying on the sidelines is a valid strategy
If the market and/or stocks are trading sideways it is valid to stay in cash until a trading opportunity presents itself.

8. Take responsibility for your trades
Evaluate why the losing trades failed and why the winners succeeded. This is where a Trade Journal can be invaluable. This can be a painful process, at least initially, because ego is built to deflect blame and accept praise, which is a trap because if you try to rationalise or justify poor trades then you will never learn from them. Use the Trade Journal to divest the emotion from the trade evaluation process.

Trading for profit should be treated as a business and these are just some of the rules and conditions that you need to abide by in order to ensure that your trading is done systematically and efficiently, without emotion.

Some good reading material on this topic includes:

* Complete Trading for a Living by Dr. Alexander Elders
* Trade Your Way to Financial Freedom by Van K. Tharp.

Michael Hevern
Investment Adviser

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 MDS Financial Services Pty Limited ABN 28 088 190 283 AFSL No. 333298 (MDS), 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 MDS Financial Services Pty Ltd, 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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Weekly Market Wrap: US Investors Lead Global Markets Higher

Friday, March 16th, 2012

Markets have continued to trade above key levels this week, led by the bulls out of the United States. The US markets have pushed through to levels not seen for over 4 years, however the Chinese market may be forming a double top near term, as the prospect of further easing of monetary policy recedes. Investors appear to be comfortable with the current state of the eurozone debt crisis and the US bank “stress test” results were well received around the globe. The US Volatility Index which is referred to as the “fear gauge” is at 4-year lows.

The central bank easing in the US and the eurozone is starting to boost equities, as investors chase higher yields.

Another round of solid domestic economic news boosted sentiment in the US, pushing markets higher. The S&P 500 stock index has closed above 1400 for the first time in almost four years, and the Nasdaq remains at 12-year highs. The Dow Jones is now within 10% of its all-time high, after booking a 7-day winning streak – its longest winning streak since February 2011. The financial and industrial sectors led the gains on the S&P 500 and the technology sector has also been strong, with Apple reaching $US600 and a market cap of $US550 billion.

US traders took the comments from this week’s Federal Reserve meeting in their stride. The Fed took no new action on rates and offered few hints about the potential for additional monetary-stimulus efforts as expected, but they did highlight that the US economy is improving.

European markets have continued their march higher after the International Monetary Fund (IMF) approved a four-year EUR28 billion loan for Greece, as part of a broader rescue package for the debt-laden country, with EUR1.65 billion available for immediate disbursement. This news was good for the PIIGS economies as the Spanish Treasury sold EUR3 billion of bonds at auction and the Italian government successfully sold EUR5 billion of three-year bonds, within the target range and with yields mostly lower. Germany, the eurozone’s largest economy, continues to power higher after the closely watched Center for European Economic Research (ZEW), reported its gauge of German investor sentiment jumped to 22.3 in March from 5.4 in February, its highest level since June 2010. The three key markets in the region – the UK, France and Germany – are approaching 4-year highs.

Asian markets remain at multi-month highs. Japanese stocks continue to benefit from the weaker yen, with the Nikkei above 10,000, but on the flip side the Chinese Shanghai Composite Index has formed a double top near-term, breaking below the key 2400, its key 6-month pivot level. Chinese Premier Wen Jiabao disappointed investors who were expecting that Beijing may loosen policy toward the property sector. Property developers were hit hard on the market after the comments and across the region the miners weighed, as traders worry about the slowing global growth for 2012 and a possible “hard” landing for China.

Commodity prices have been under selling pressure this week on the back of a resurgent US dollar. Even crude-oil prices eased on the back of rumours that the US and UK were considering the release of their strategic reserves.

In Australia, the earnings season has finished and the dividend season has come to an end. We have been driven by global forces this week, but the 4300 level remains an obstacle for our market, as our materials sector has suffered from the lower commodity prices and the concerns out of China.

The Aussie market is again testing the 200 day moving average, and the index has found support at its six-month pivot level around 4180. On the S&P/ASX 200 the 4180 level is the crucial support level and the 4320 level becomes increasingly more important each time it is tested. This week we found support around the 4150 level but we are now again trying to punch through the 4320 level.

A number of the S&P/ASX sectors are holding above their 150 day moving averages (MAs), having found support this week. These include Energy, Consumer Discretionary and Financials. The Industrials and Utilities sectors have had a strong week and are finishing on their highs, while Telecoms, Materials and Consumer Staples are underperforming and are below their 50 day support levels.

Traders should be looking to protect their profits in this market and reduce their risk by using options strategies. The MDS Financial Advisory Services team can help with these trades. Call me on 1300 610 024 for further information. Investors should also be looking to utilise options strategies to protect their positions, as options are a relatively cheap form of insurance, as volatility is low, and you can also leverage yourself for a break to the upside if that occurs.

Remain attuned to the news from overseas, particularly from the eurozone and China in relation to easing policies, and the US, as their markets hold above multi-year highs. Monitor the performance of the US dollar for a guide to the future direction of commodities and equities prices.

The S&P/ASX 200 index is currently trading at 4272 and is holding above the key medium-term pivot level around 4180. Key levels for the index next week will be 4180 and 4320, with 4230 the key pivot level.

By Michael Hevern
MDS Trading Desk

For Buy and Sell recommendations on ASX listed companies register for a free trial of MDS Financial Research.

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 MDS Financial Services Pty Limited ABN 28 088 190 283 AFSL No. 333298 (MDS), 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 MDS Financial Services Pty Ltd, 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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It’s Dividend Time Again

Friday, March 2nd, 2012

It is that time of year again when many Australian companies pay dividends. Australian companies prepare financial reports twice a year and profitable companies usually pay dividends twice a year. These dividends are announced when the company reports. The Australian dividend seasons are March – April and July – August.

With interest rates at very low levels, dividends become more attractive to investors. Why settle for a 5% return on your cash when you could get more than that in dividends, tax free?

Let’s imagine you have $10,000 cash to invest and your choice is between term deposits and dividends.

You could take the $10,000 down to your local Commonwealth Bank (CBA) branch and place it in a term deposit. Current deposit rates are around 5.0%, depending on how long you’re prepared to tie your money up for. After 12 months you will receive interest of $500. Unfortunately it doesn’t end there, because the tax department treats this as income and taxes you at your personal rate. Assuming a 30% tax rate you will pay $150 and get to keep $350 from your investment.

Alternatively you could buy shares in CBA for $49. At this price CBA pays a dividend of 6.6%. At a lower price the yield is higher still. After 12 months you will receive a return of $660 in two payments during the year. But when it comes to tax time it gets even better. The income is taxable as before, but you get a credit for the tax the company has already paid. It will depend on if your tax rate is higher than the company rate of 30% or lower as to the impact of tax on your total return. Assuming your tax rate is 30% then you get $660 after tax. If your tax rate is lower, as it is in self managed super funds, then your return could be even higher.

So investing for dividends from the share results in you receiving almost double the return after tax, $660 compared to $350 when you put your money in the bank. You are now exposed to movement in the share price, which could be good or bad, but remember your return on investment is determined by when you buy the share, which sets your dividend yield, so day to day fluctuations of the share price are not as important. You’ve missed the opportunity to pick up the CBA dividend this time around – it closed last week – but there are plenty of other companies still to pay dividends this season.

You can further enhance your returns using a dividend reinvestment plan, allowing you to buy more shares at a discounted rate. Not all companies offer this facility, but if the company does this allows you to compound both the number of shares and the growth in the shares. Over time this can make a significant difference to your overall return.

And dividends are not limited to investors. Traders can also take advantage of dividends as they are paid. There is a tendency for the share to rise prior to the ex dividend date and also recover after the dividend is paid. Nimble traders can take advantage of this trading opportunity.

For a fuller explanation on dividends and their effect check out the Trader Dealer blog. You will also find information on upcoming dividends updated on the blog as well.

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