Posts Tagged ‘S&P500’

Traders Hit the Sell Button on Concerns Over “Tapering” Stimulus

Friday, June 7th, 2013

Weekly Market Wrap

Traders’ continued selling this week, as markets plunged from their recent record highs. Traders in Europe and the US have joined in on the selling, as those markets have given back all the gains of the past five weeks and are again finishing at the low end of their ranges for the week. In Asia the markets have finished lower for the past four weeks. The Chinese market is also finishing lower after bucking the trend in Asia in the past month, finishing higher for five of the past six weeks.

US stock markets are tracking to end the week around their lows. The three benchmark indexes are all down for a third week. The Dow Jones is hovering around the 15,000 level, while the S&P 500 has held around 1600. Markets are testing their 50-day moving averages for support, as the “buy-on-the-dip” mentality is being tested. Traders have hit the sell button this week, on concerns that the US Federal Reserve may start to “taper” its QE stimulus as early as September. Economic news has been mixed, with ISM data renewing concern that economic growth could slow. The report from the Institute for Supply Management showed manufacturing unexpectedly contracted in May at the fastest pace in four years, decreasing to 49 (down from 50.7 in April).

Traders also reacted negatively to other mixed economic data, as a report from the ADP Research Institute showed US companies hired fewer workers in May than projected, in reaction to federal budget cuts and higher taxes, while the Commerce Department showed US factory orders in April fell short of estimates. The Fed’s Beige Book, a survey of the 12 Fed regions, showed the economy expanded at a “modest to moderate” pace in all but one of the central bank districts, with broad-based gains ranging from business services to construction and manufacturing. Investors are keenly awaiting the Non-Farm Payrolls monthly employment report due out Friday, which will give some further insight into the strength of the US economy. Economists are forecasting a slowing in growth in payrolls in May and this will dominate sentiment for next week.

European stocks markets hit fresh 6-week lows this week. The Europe Stoxx 600 was weaker, as trading volumes picked up and the index pared its gains to 4% for the year. In London markets fell to 6-week lows, as the miners weighed on sentiment, while retailers also slumped. In Germany the market has confirmed a breakdown from a recent double-top formation, despite surprising German unemployment figures for May, which rose four times more than economists estimated as the eurozone’s sovereign debt crisis and a long winter impacted Europe’s largest economy. European traders showed concern about comments from Deutsche Bank that indicated the US central bank’s policy makers will start “tapering” quantitative easing as early as September. Traders were also disappointed as the ECB left additional stimulus measures “on the shelf” and kept rates on hold, with ECB President Draghi predicting that the eurozone will return to growth by the end of the year.

Asian stock markets have fallen sharply this week, and the Japanese market continued its sell-off. The MSCI Asia Pacific Index has plunged down -9.5% from its May peak and is heading for its lowest close since early February. The Chinese and Hong Kong markets have traded lower. Investors will have to digest the Chinese trade balance and CPI figures over the weekend after getting mixed signals from recent Chinese data with the HSBC Holdings Plc and Markit Economics reporting their Flash PMI index of manufacturing in the world’s second-largest economy fell to 49.2 in May from 50.4 in April, while last weekend an official index for the industry rose to 50.8 (up from 50.6).

Japanese stocks fell further this week, falling below 13,000 points for the first time since early April, as the Nikkei is now down nearly -20% from its recent multiyear peak in May. The recent selling was triggered after Prime Minister Shinzo Abe failed to impress investors in a speech outlining Japan’s growth strategy in the so-called “Third Arrow” of economic revitalisation, which included a legislative campaign to loosen rules on businesses ranging from non-prescription drugs to construction.

In today’s Analyst’s Eye we review a trading strategy we recommended back at the start of May that could have been used to protect your position(s) in high-yield stocks. The trade has gone to plan and we discuss how you would now manage this trade protection here.

The month of May has ended lower for the past four consecutive years, including in the Asian markets. The selling in the Aussie market has continued into the start of June, with stocks across the board suffering ever since the RBA surprised the market by cutting interest rates back in early May. The ASX market and Aussie dollar have recently been hit by concerns over slowing growth in China, concerns over the US Federal Reserve tapering its stimulus this year, and volatility in Japanese equities.

Overseas investors continue to leave the Aussie market and our dollar continued its implosion to below US94.35c this week, a level not seen since October 2011. The selling was broad-based, with most sectors selling-down a further -3.5% this week. The defensive sectors were the worst hit, while the materials sector was helped by the falling Aussie dollar and the short-term improvement in the iron ore and gold prices which held around the $US1,400 level again, but still finished in the red.

The market now has key short-term resistance around the 4900 level and is testing 4800, which will be key for next week. The ASX 200 and All Ords have recently given back nearly all their gains for the year and are yet to find support. The ASX 200 market has crashed through the 4900 level. The main drivers for the local market have been the continued weakness in the Aussie dollar, resulting in the implosion of the yield trade and also the confirmation of the below-forecast growth in the economy, after the ABS reported disappointing GDP figures, with even Western Australia falling into recession. The Aussie economy grew 0.6 percent last quarter from the previous three months, below the forecast 0.7 percent. The RBA has kept its cash rate at a record low of 2.75 percent as expected, but kept an easing bias and the ABS reported the balance of payments figures were slightly below expectations.

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Key levels for the ASX 200 index next week will be 4730 and 4900, with 4820 the key near-term pivot level. Volatility has jumped sharply this week, so that protection you have in place for your portfolio should be paying off. The 13-day moving average level will be key resistance going into June. The market is currently testing its 200-day moving average for near-term support.

Investors should be reviewing their insurance (see the Analyst’s Eye today) 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 (growth), China (PPI data) and the US (stimulus ON/OFF/tapered). 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.

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Markets Ride the Stimulus Wave to New Highs: Weekly Market Wrap

Friday, May 10th, 2013

Traders have continued their buying this week, after confirmation of continuing global stimulus at central banks and even the RBA has joined the party. Stock markets have been strong with many making new all-time highs, particularly the US and German markets. Trader sentiment has been has been buoyed by promising economic data and the renewed commitment from the central banks to continue their stimulus programs.

In Australia the RBA surprised many by cutting the cash rate to a record low of 2.75% and signalling that slowing inflation gives it room to ease policy. The futures market is predicting a better-than-50 percent chance the RBA will lower its benchmark interest rate in July. The unemployment rate fell to 5.5 percent in April, as the economy picked up more than 50,000 new jobs (34,500 full time), making up for a drop in March. However there are concerns over the accuracy of the figures.

US stock markets continue to make new highs, with the S&P 500 up for five of the past six sessions and the Dow Jones is closing at another record close above 15,000 after better-than-estimated earnings reports. The three benchmark indexes have all edged higher by around 1.4% this week, building on the gains of the prior two weeks. The Dow Jones held above the 15,000 level again, while the S&P500 again closed above the 1600 level for another all-time high. The gains have been broad based as over 80 percent of S&P 500 stocks are trading above their 50-day moving average, according to Bloomberg (the highest level since 13 February). Of the over 430 S&P 500 companies that have reported their financial results so far this season, 71 percent have beaten estimates for profit and 52 percent have exceeded forecasts for sales, according to Bloomberg. Earnings at S&P 500 companies have risen 1.1 percent in the first three months of the year, significantly up from the analysts’ forecast fall of -1.4%.

European stocks markets have traded higher this week, reaching highs not seen since mid-2008. The Europe Stoxx 600 is up 8.6% for the year, with the Financials and Materials sectors the best performers for the region. It is clear that the ECB will remain supportive of equities going forward. Supporting the positive sentiment was news that German industrial production increased for a second month in March and production rose 1.2 percent from February. This was on top of the Chinese report from the General Administration of Customs that showed that exports rose 14.7 percent in April. The German market has traded at a new all-time high, while in London the FTSE closed around its highest level since December 2007, with the BoE leaving rates on hold. The French CAC has held near its highest level since mid-2011.

Asian stock markets have performed well this week, as Chinese traders pushed the market to 2-week highs. The MSCI Asia Pacific Index is hovering around 5-year highs. The index is up around 10% for the year and is still on track for the longest winning streak since September 2009, on optimism over central bank stimulus.

The Japanese market is up 37% for this year, holding above 14,000 level due to speculation the Bank of Japan will deploy more measures to beat deflation as policy makers in the US and Europe remain on standby to stimulate growth. The Chinese market is easing back from 2-week highs, as Chinese CPI rose 2.4 percent for the month, while producer prices fell 2.6 percent, this was in contrast to the previous session’s data that showed Chinese exports rose 14.7 percent in April, much better than the 9.2 percent forecast, while imports jumped 16.8 percent in April, again much better than the 13 percent forecast.

In Hong Kong the market also eased on the Chinese CPI/PPI news. The Korean market jumped after its central bank also cut interest rates. Of the around 300 companies on the MSCI Asia Pacific Index that reported their latest quarterly results since April, 51 percent have beaten analyst forecasts, according to Bloomberg.

In today’s Analyst’s Eye we discuss how you can be Bullish On The Cheap. The month of May has ended lower in the past three straight years, but according to a study done by Goldman Sachs the market has never been down for four consecutive months of May in the past 80 years, which suggests that the bulls will prevail this year based on probabilities. Remember protection is still relatively cheap!

The Aussie market is hovering around 5-year highs, as the materials sector has surged 6% and the chase for yield has pushed the finance sector 10% higher in the past six weeks and the telecom and property sectors have had a similar outperformance.

The market has held around the 5200 level and this level will be key again for next week. Once again the All Ords is testing the key 5180 level. The ASX200 market is up around 1.5% this week having bounced off the 5100 level. The main drivers have been the upcoming dividends from the banks and the recovery in the commodity prices which has helped the materials sector to join in on the rally, as the RBA surprised with a 25 basis cut, with interest rates now down at a record low of 2.75%.

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Key levels for the ASX200 index next week will be 5100 and 5250, with 5160 the key near-term pivot level. Volatility remains relatively cheap, affording cheap protection for your portfolio. We are holding above the 13-day moving average and this level will be key for trading in May.

Remain attuned to the news from overseas, particularly from the eurozone (corporate earnings), 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.

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.

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Markets Higher As “Buy on Dips” Rules, But Volatility is Increasing: Weekly Market Wrap

Friday, February 8th, 2013

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.

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.

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Weekly Market Wrap: Traders Take Some Profits After Stellar Week

Friday, October 19th, 2012

Traders pushed the markets higher this week, as markets recovered all of their losses from the previous week. Markets are again testing key overhead resistance which has been in place for many months, and many years in some cases. Trader sentiment has recovered from the news that the World Bank and the IMF reduced their estimates for global economic growth, while concerns over the eurozone debt troubles have abated, ahead of the two-day EU leaders’ summit, which is currently underway.

US stock markets have rebounded from their key support levels and are again testing multi-year highs, with the S&P 500 only 8% away from its all-time highs from back in October 2007. The US economic news continues to improve, particularly in the housing sector, however some disappointing results from bellwether technology stocks have weighed on sentiment in the past week.

The technology sector has weighed after disappointing earnings from IBM, Google and Intel. IBM, which accounts for over 11 percent of the Dow Jones Index, said that corporate customers are showing caution in placing orders and consumers in developed markets are delaying PC purchases.

In US economic news the Department of Commerce reported retail sales rose 1.1 percent in September (beating the 0.8 percent gain forecast) and August sales were revised up to 1.2 percent. Meanwhile the Federal Reserve in Washington reported that output at US factories, mines and utilities rose 0.4 percent in September, compared with a -1.4 percent decline in August, which was the biggest since March 2009. Manufacturing, which makes up 75 percent of the total, climbed 0.2 percent, while manufacturing in the Philadelphia region expanded in October for the first time in six months, reaching 5.7 (up from -1.7 in September), a sign the industry may be starting to stabilise (a reading above zero indicates expansion). Consumer confidence unexpectedly climbed this month, while the Fed Reserve’s Beige Book showed that the US economy was expanding “modestly” last month. On the earnings front, of the 95 S&P 500 companies that have reported so far over 70% have beaten earnings estimates, with 23 companies missing forecast earnings, according to Bloomberg. All 10 S&P 500 industry sectors are looking to finish the week in the green.

European stock markets have climbed every day this week, despite caution ahead of the two-day European Union’s leaders’ summit. The Stoxx Europe 600 Index had its first three sessions of consecutive gains since early September. The index has still managed an 18% jump from its lows in June, supported by the European Central Bank (ECB) unveiling an “unlimited” bond-purchase plan and the Federal Reserve starting a third round of quantitative easing (QE3). Traders turned to “risk on” after two German lawmakers said Germany is open to Spain seeking a precautionary credit line, which is a back-down of German resistance to a full sovereign bailout for Spain.

Across Europe the financials led the gains, but miners also performed well after positive Chinese data. Traders were positive after the news that the Moody’s Investors Service left unchanged its investment-grade debt rating on Spain and US house building surged to a four-year high. The EU leaders’ meeting in Brussels has some heavy issues to resolve, as French President Hollande has said that the efforts to stem the eurozone debt crisis may unravel if EU member states fail to deliver on their promises. President Hollande has called on the eurozone to introduce a banking union, to provide economic help to countries that reduce budget deficits.

Asian stock markets rose this week, after Chinese economic growth reported in-line with economists’ forecasts. The ASX hovering around 15-month highs. The MSCI Asia Pacific Index has rebounded this week and is on track for the highest close since mid-September, and all the 10 industry groups are looking to finish in the green for the week. In Japan the Nikkei 225 Stock Index has rebounded from early weakness to record its biggest 3-day gain since March. Traders cheered comments from the Japanese economic minister who called for stronger stimulus from the Bank of Japan, which meets at the end of the month. The Chinese market is pushing to new monthly highs on the back of news that Chinese gross domestic product (GDP) expanded 7.4 percent in the third quarter from a year earlier, as expected. The government also reported data for industrial production, retail sales and fixed-asset investment which all accelerated. Chinese GDP rose 2.2 percent from the previous period, which is a four-quarter high. Chinese Premier Wen Jiabao said the Chinese economic situation last quarter was “relatively good”, signaling that the nation’s slowdown is bottoming. The Chinese Communist Party will nominate new leaders at its 18th congress starting 8 November, in its once-a-decade leadership change. Traders are expected to remain cautious up till that time.

In commodities crude-oil prices have recovered from weakness earlier in the week, and are looking to close the week around $US92 again. The gold price continued to back off 11-month highs and is now trading around the $US1,750 level, as traders price in the global quantitative easing. Copper prices bounced off their 50-day average price.

The Australian market surged on open yesterday, and the ASX is investigating trading irregularities in the opening auction process for a number of stocks including ANZ, CBA and Brambles. The market is hovering around the 4550 level, as we saw short covering above the key 4520 level. The Australian market has jumped higher, closing at its highest level in 15 months, as traders cheered the news out of China that their economy may be bottoming around current levels and bet that Reserve Bank of Australia Governor Glenn Stevens will follow the last interest rate cut with another reduction in November, bringing the cash rate to 3%. This would be a 50-year low and the lowest rate since back at the height of the GFC. In our market all sectors are looking to finish the week in the green, as investors took their cue from overseas investors and as traders have been coming to terms with their optimism over the central bank stimulus.

Protection is still cheap at the moment and investors should have protection in place for their capital, 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, China, Japan and the US. Monitor the performance of Italian and Spanish borrowing costs (which are currently at six-month lows), China-Japan tensions and 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 4555 and is looking to close the week at a 15-month high. Key levels for the index next week will be 4450 and 4590, with 4500 the key short term pivot level. Traders are still buying on the back of the global central bank stimulus, in anticipation that it will be enough to boost global growth.

In this last week’s Analyst’s Eye we introduced you to the Instalment MINI warrants that are the latest generation of Instalments Warrants providing straightforward and transparent leveraged exposure to Australia’s leading companies, for individuals and Self Managed Super Funds. This strategy would have paid off handsomely on the ANZ trade this week.

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 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.

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Weekly Market Wrap: Markets Fall As Investor Optimism Over Stimulus Measures Fades

Friday, September 28th, 2012

Traders continued to take profits off the table this week, but markets remain at key multi-month and multi-year highs. The US and benchmark European markets remain in the upward channels that have been in place since May. In Asia markets are backing off 6-month highs, with the exception of China which is testing 2000, a level not seen since the end of the GFC.

US stock markets had recorded five straight days of falls, with the S&P500 posting its longest retreat since July, as concern grew over a worsening euorzone debt crisis and comments from the President of the Philadelphia Federal Reserve, Charles Plosser, who said new bond buying (QE3) announced by the Fed this month probably will not boost growth or hiring.

Despite the rise in the US markets last night, overall the markets are still lower for the week. The Volatility Index has been on the rise this week as investors buy options for protection near-term. The Dow Jones and the S&P500 are both close to the all-time highs of October 2007, as investors pushed equity prices higher due to optimism about better-than-estimated earnings and central bank stimulus measures. The Dow Jones is around 6% from its peak and the S&P500 is just 9% away. Trading volumes on the NYSE continue to grow and remain above the three-month average.

European stock markets have recorded their biggest drop in two months this week, with a slight relief rally overnight. The Stoxx Europe 600 Index plunged -1.8% in a single session, its largest drop since late July, however this index is still up 16% from its June lows, as the European Central Bank policy makers approved a plan to implement an “unlimited” bond-buying program.

Traders were spooked by the Ifo Economic Institute report that German business confidence fell for the fifth straight month to the lowest level since February 2010. The reading was worse than forecast and confirms that the eurozone debt crisis is impacting the region’s economies, which are falling deeper into recession. Investors were already nervous about the leaders of Germany and France being in conflict over plans to unify the debt-laden European banking system. Also weighing on trader sentiment were riots over austerity measures, news that Spanish bond yields surged back above 6% (the highest level in three weeks), concerns over Spanish and Greek debt escalating, and the downbeat comments from the US Federal Reserve member suggesting the QE3 bond buying program may not be enough to stimulate the job market in the US.

Asian stock markets are looking to end flat for the week, as they recover from growing concerns over slowing global economic growth and an ongoing territorial dispute between China and Japan weighed on sentiment. The MSCI Asia Pacific is now up around 5% this quarter, on the back of central bank easing in Europe, the US, Japan and China as they took action to stimulate economic growth, while it is up around 8% for the year. During the week the Japanese market recorded its largest daily percentage decline since May, as the strong yen and the ongoing territorial dispute between China and Japan continued to weigh on sentiment. The Shanghai Composite had fallen -7.7% this year on concern the government is not loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. The index sold down to the 2000 level, as traders vented their concern. This has prompted the PBOC to act on stimulus as Chinese stocks have now risen for the first time in three days after reports that the People’s Bank of China added a record net 365 billion yuan ($US56 billion) to the financial system this week (a form of quantitative easing), as cash demand rises before their week-long holiday.

In commodities crude-oil prices fell below $US90 this week, the lowest level in two months, but crude-oil appears to be rebounding in the short-term at least. On the flip side gold prices at around $US1,750 are on track to record their best quarterly gain in over two years, currently up 10% since the start of July, due to central banks boosting stimulus measures to support global growth. Copper remains near 4-month highs and is on track to finish up around 7% for the quarter.

The S&P/ASX 200 index is currently trading at 4380 and is looking to close the week lower. Key levels for the index next week will be 4330 and 4450, with 4360 the key short term pivot level. Traders are squaring off their accounts for the end-of-quarter and now need to decide if all this stimulus will be enough to boost global growth. The mining and mine services sectors have been in focus this week, as commodity prices have continued to pull back and data showed slowing global growth.

In our market the defensive sectors supported the market this week, as investors took profits on their growth-sensitive stocks near-term. Telstra, Real Estate REITs and health-care stocks saw buying in to the end-of-quarter. The financials and materials sectors have resumed their upward path. The financial and info-tech sectors held around 12-month highs. The materials, industrials and energy sectors eased over the week, as trader optimism over the central bank stimulus faded.

Remain attuned to the news from overseas, particularly from the eurozone, China, Japan and the US. Monitor the performance of Italian and Spanish borrowing costs, China-Japan tensions and the US dollar for a guide to the future direction of commodities and equities prices.

Protection is very cheap at the moment and investors should have protection in place for their capital, and could look to put their money to work while reducing risk by using options and warrants strategies. 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 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.

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Weekly Market Wrap: Markets Ease As Investors Reassess

Friday, September 21st, 2012

Traders took some profits off the table this week, but markets remain at key multi-month and multi -year highs and are expected to drift higher into the end-of-quarter next week. Fund managers and retail investors are still under-invested in this market and we expect a chase for performance as we rule off the quarter. In Asia the latest round of data showed Chinese manufacturing heading for an eleventh month of contraction and Japanese exports fell in August, while data in Europe also showed eurozone services and manufacturing output fell to a 39-month low in September.

US stock markets have traded sideways and have closed modestly lower for three sessions this week, as the benchmark indexes test 2007 and 2000 highs for the Nasdaq. Investors turned their focus on to the data confirming slowing global growth, and have been taking some profits off the table. The S&P 500 is still up 16% for the year and last week climbed to its highest level since 2007, after the policy-setting Federal Open Market Committee (FOMC) announced a new round of quantitative easing (QE3) designed to boost growth and job creation, while forecasting that the benchmark interest rate will stay at a record low through until at least mid-2015. The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

In European markets Spain has been in focus this week and the Financial Times has now reported European Union authorities are helping Spain compile an economic reform program, which will be seen as a positive, while Greek coalition leaders are continuing their discussions over a proposed EUR11.5 billion package of budget cuts. Traders have exhibited caution as concern for a deepening economic slowdown in China (and Japan) overshadowed optimism from the announcement from the Federal Reserve’s third round of quantitative easing (QE3) and the news that the European Central Bank policy makers agreed to implement an unlimited bond-buying program. Data in the eurozone also disappointed as a composite index for services and manufacturing activity in the eurozone fell in September more than economists had projected. The PMI reading fell to 45.9, its lowest since June 2009 (down from 46.3 last month). The trading volumes have been picking up as investors come to the realisation that they cannot fight the central banks’ massive liquidity injections and that they must be exposed to equities in a chase for yield. The Europe Stoxx 600 index has eased this week with falls led by the big caps, although it is still trading around 15-month highs and the index has jumped 17% from its June lows, as central banks moved to action.

Asian stock markets have backed off 4-month highs as Chinese and Japanese data disappointed. The MSCI Asia Pacific Index has fallen, but is still up 9% for the year. Earlier in the week this index was at its highest level since early May, on the back of central banks from Europe, the US and Japan taking action to stimulate growth going forward. The Bank of Japan (BoJ) unexpectedly expanded its asset purchasing program, the move to expand its monetary policy, by increasing the size of its asset purchase program to Y80 trillion (up from Y70 trillion) an increase of $US128 billion, but overnight the Finance Ministry reported that exports from the world’s third-largest economy declined 5.8 percent in August from a year earlier, which resulted in selling of the exporters. Elsewhere Japanese companies that do business in China sold-off as a territorial dispute sparked the worst diplomatic crisis between the two nations since 2005, putting at risk a trade relationship that has tripled in the past decade to more than $US340 billion.

The Chinese market continues to underperform and had it biggest 2-day drop in 6 months this week, on concerns over the escalating tensions with Japan and worsening economic slowdown. The Shanghai Composite has fallen over -7% this year on concerns the government is not loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. The Chinese central bank said it is placing more emphasis on price stability, boosting concerns it will delay easing monetary policy even as the economy slows and as inflation has accelerated for the first time in five months in August, and may limit any monetary easing. The Chinese market is down at levels not seen since February 2009, and the preliminary HSBC PMI reading of 47.8 (a number below 50 signals a contraction), showed Chinese manufacturing is contracting for an eleventh month in September.

In commodities crude-oil has fallen over 7% this week, while gold has held around 7-month highs and copper remains at 4-month highs.

The Australian market is looking to push towards the 4450 level, due to the fact that there has been a coordinated global central bank action to boost economic activity worldwide. The mining and mine services sectors have been in focus this week, as commodity prices pulled back and data showed slowing global growth.

In our market the defensive sectors have seen profit-taking, as investors switch into growth-sensitive sectors.

Telstra, Real Estate REITs and info-tech stocks have eased back after recently making new yearly highs. The financials and materials sectors have resumed their upward path. The financial sector is back at 12-month highs. The materials sectors continued higher, as we are see rotation into this sector in reaction to the central bank actions.

Investors should have protection in place for their capital, 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, China and the US. Monitor the performance of Italian and Spanish borrowing costs, China and 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 4411 and is looking to close the week higher again. Key levels for the index next week will be 4350 and 4450, with 4380 the key short term pivot level. Traders have received the news they wanted from the ECB and the US Fed (QE3) and now the BoJ in Japan, and are still watching for some response from the Chinese central bank.

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 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.

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Weekly Market Wrap: Markets Jump as Central Banks Deliver

Friday, September 14th, 2012

It was the ECB that delivered last week, after ECB President Mario Draghi unveiled an unlimited bond-buying program, but this week traders have been hanging out for an announcement from the US Federal Reserve, and Ben Bernanke has delivered with a third round of quantitative easing. In Asia however we are seeing mixed messages from the Chinese government regarding the need for further stimulus near-term.

US stock markets surged overnight, sending the S&P 500 Index to its highest level since 2007, and the Nasdaq to its highest since late 2000. The Dow Jones surged with all 30 stocks closing higher and in the broader market all 10 groups in the S&P 500 rose over 1 percent, led by financial and commodity-related sectors. The S&P 500 is only around 7 percent from reaching its record closing high from 2007 after rallying 16 percent this year.

Investors hit the BUY button after the Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month as it seeks to boost growth and reduce unemployment. The Fed said it is in for the long haul and will continue its purchases of mortgage-backed securities, and undertake other asset purchases if the outlook for the labor market does not improve substantially. The Fed also extended its commitment to zero interest rates from 2014 into mid-2015. Operation Twist, the program to swap $US667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, will also continue.

Fed officials said economic growth will improve faster than they had earlier projected, as they upgraded their 2013 and 2014 estimates for gross domestic product. The Fed now expects the job market outlook to improve more swiftly by 2014, with unemployment forecast to fall to between 6.7 and 7.3 percent, (down from earlier projections of 7 to 7.7 percent) in their June projections. In 2015, unemployment is expected to fall to between 6 and 6.8 percent. The Fed also now expects growth will improve to 3 percent next year and up to 3.8 percent in 2014 (up from earlier estimates of 2.8 and 3.5 percent).

European stock markets have pushed to 14-month highs this week, but eased overnight as investors awaited a Federal Reserve decision on further stimulus measures. The three benchmark indexes traded higher this week, with the London FTSE recovering to end higher, while the French and German markets backed off 14-month highs. The UK FTSE index climbed to a 3-week high ahead of the US Federal Reserve’s policy statement in anticipation of another round of bond buying to spur economic growth. Traders bought financials early in the week, as they correctly anticipated that the German Federal Constitutional Court would not halt the country’s participation in the EUR500 billion European Stability Mechanism (ESM), the eurozone’s permanent bailout fund. Germany is contributing 27% of the monies to this ESM bailout fund. Growth-sensitive stocks have had a good run as well, after last week’s announcement from the ECB that it will target government bonds with maturities of one to three years, including longer dated debt that has a residual maturity of that length. The key to this program is that the purchases will be fully sterilised, meaning that the overall impact on the money supply will be neutral, and the ECB will not have seniority. European traders will get to react to the Fed announcement tonight.

Asian stock markets have been on the rise this week, in reaction to the ECB confirming its bond-buying program and in anticipation that the US Federal Reserve would announce another round of asset purchases at the end of its FOMC policy meeting. The MSCI Asia Pacific Index has recorded its longest winning streak since July, as traders bet that the US and Chinese central banks will act to kick up growth in the world’s two largest economies. The US Fed has delivered, however traders are getting mixed messages about the prospect of central bank easing in China, as the Xinhua News Agency reported an official saying that massive stimulus measures would be “detrimental” to sustainable domestic economic growth. This conflicts with a recent statement from Chinese Premier Wen Jiabao, speaking at the World Economic Forum, where he signaled that there is room for more fiscal and monetary policy to support growth, saying China still has “ample strength” to meet its economic goals for the year.

Commodity-related stocks have traded higher as copper and crude-oil trade at 4-month highs and gold prices have risen to their highest level since February. Traders will be reacting to the Fed’s announcement near-term, which should push stock prices higher.

The Australian market is looking to push towards the 4450 level, due to fact that there has been a coordinated global central bank action to spur on growth. The mining and mine services sector has recovered this week, as commodity prices continued higher in reaction to the central bank announcements.
In our market the defensive sectors have seen profit-taking, as investors switch into growth-sensitive sectors. Telstra, Real Estate REITs and health-care stocks have eased back after recently making new yearly highs. The utilities, financials and energy sectors have resumed their upward path. The financial sector is back at 12-month highs. The industrials and materials sectors bounced, as we are seeing rotation into these sectors in reaction to the central bank actions.

Investors should have protection in place for their capital, 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, China and the US. Monitor the performance of Italian and Spanish borrowing costs, China and 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 4383 and is looking to close the week strongly higher. Key levels for the index next week will be 4350 and 4450, with 4380 the key short term pivot level. Traders have received the news they wanted from the ECB and the US Fed (QE3), and are now watching for some response from the Chinese central bank.

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 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.

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Analyst’s Eye: Intermarket Analysis – Window Into The Markets

Friday, July 6th, 2012

Intermarket analysis is a branch of technical analysis that examines the correlations between a number of related markets, which may include major asset classes such as stocks, bonds, commodities and currencies. It can be thought of as a type of instantaneous fundamental analysis that gives you an overall bias and direction for the markets you are studying.

Equities markets have been difficult this year and intermarket analysis can give you an insight into what you can expect in the near-term.

In intermarket analysis you look for times when the underlying relationships are diverging for warning of a turnaround, or when they are moving in the same direction for a confirmation of the underlying trends. John Murphy’s first book, Intermarket Technical Analysis, provides an excellent in-depth study of the correlations between related markets.

Crude-Oil As a Barometer On the Economy

Crude-oil prices are a good indication of the state of the underlying economy. Higher prices cannot be supported for any length of time unless the underlying economy is exhibiting strength.

Crude-oil is one of a raft of commodities that has suffered severe selling in the past few months, down over 30% since its mid-March peak. At the end of June it hit 8-month lows, but has now rebounded a whopping 13% and is at a 1-month high.

There are a number of reasons for the recent price surge, including speculation that central banks from Europe to China will ease monetary policy to spur economic growth while sanctions against Iran may curb supply. The European Central Bank has this week cut interest rates to 0.75%, and the Chinese central bank has now cut interest rates for a second time in a month.

Crude-oil prices provide an insight into the underlying strength of the economy and can be used in intermarket analysis to determine what to expect in the equities market.

Intermarket Analysis – Crude-Oil Versus S&P500

One way to anticipate near-term activity in the equities markets is to examine the S&P 500 equities index and compare it against the movements and trend in the crude-oil market.

The interrelationship between equities and crude-oil comes from the fact that energy costs make up a significant proportion of the costs of doing business for the corporate world. When crude-oil prices are high, energy costs are seen as a drag on corporate activity and a tax on doing business. Crude-oil prices also impact on consumer spending which equates to over 65% of growth in the US economy.

2009-2010 – Crude-Oil Versus S&P500

Our analysis starts back in 2009. S&P500 equities and crude-oil prices suffered a severe down trend in the aftermath of the GFC. At the end of 2008 crude-oil prices based and a new uptrend began in March 2009 (as shown in Chart 1 below). The crude-oil price led the rebound in the S&P500 equities market and the divergence provided a fantastic setup for the bull run in S&P500 equities which began in April 2009.

The uptrends in crude-oil and the S&P500 equities market continued through until early 2010, when crude-oil again gave a great divergence signal that there was impending weakness in the S&P500 equities market. The equities market sold-off in April 2010, but the crude-oil market was giving warning signals of weakness in the overall economy from earlier in 2010, as crude-oil prices failed to make new highs (in direct contrast to the equity prices).

Divergence

S&P500 equities remained in a downtrend until 4Q 2010, when again we saw divergence between crude-oil and equity prices, as crude-oil began to make new highs and the equities prices continued lower.

2010-2012 – Crude-Oil Versus S&P500

By October 2010 crude-oil started its uptrend and the S&P500 equities soon followed (as seen in Chart 2 below).

Divergence

The uptrends in crude-oil and S&P500 equities remained intact until April 2011, when divergence reappeared, as crude-oil gave a warning of weakness and started to make lower lows. It took another three months for the S&P500 equities market to crash, which began in May 2011 and we saw follow-through in July 2011.

By the 4Q 2011 crude-oil prices began to find a bottom and again there was a divergence signal, which was an early sign that the underlying economy was strengthening and supporting higher oil prices.

The uptrends in crude-oil and S&P500 equities remained intact again until April 2012, and once again divergence appeared as crude-oil gave an early warning of weakness with lower lows. Again it took a couple of months for the S&P500 equities market to crash, which it did in April 2012.

The Trade

Crude-oil has been a leading indicator for the S&P500 equities markets for the past four years and any divergence should be heeded as an early warning signal for equities prices.

Currently there is still a divergence between the crude-oil and S&P500 equities prices. Chart 2 illustrates that crude-oil prices are confirming underlying weakness in the overall economy, but equities prices are still ticking higher (defying gravity perhaps).

We would need to see crude-oil have consecutive weekly closes above $US92 to confirm a change in trend for crude-oil. Unless this occurs in the near-term there is underlying weakness in the economy which will translate to lower equity prices.

This outcome may be short circuited by a coordinated global central bank intervention towards quantitative easing, but until that occurs be prepared for weaker equity prices in the near–term.

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.

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Weekly Market Wrap: Testing Time for Investors

Friday, June 8th, 2012

Investor nerves have been tested this week as volatility increased. Traders in the northern hemisphere are gearing up for summer and global growth is declining for a third straight year.

The bears remain in control of the markets, although stocks did tick up on hopes that the central banks will make a move towards quantitative easing. These expectations are proving to be premature, as the ECB and EU leaders are not likely make a move until after a government is formed by the Greek elections on 17 June. In the US the Federal Reserve Chairman Ben Bernanke stopped short of signaling new stimulus measures in testimony before Congress.

US markets are again testing their 200-day moving averages, which may end up acting as resistance near-term. Economic data continues to point to slowing economic growth and the monthly jobs data showed unemployment remains stubbornly high at 8.1%.

In the eurozone the Greek and Spanish markets were pummeled on debt contagion concerns, and even the German market sank lower, due to worry about growth in the region. The UK market had a shortened trading week.

Stocks did spike as investors were optimistic that the European Stability Mechanism could inject capital directly into eurozone banks, which would have the advantage of not loading the country debt levels. The ECB left interest rates at 1%, but said growth remains weak and the economic outlook in the eurozone is subject to increased downside risks, leaving the door open for a rate cut in July.

Asian markets are testing multi-year lows and at this time are bouncing, helped by news overnight that the Chinese central bank said it would lower benchmark interest rates on loans and deposits by 25 basis points.

There was a flight to safety, but the US dollar backed off the high levels not seen since mid-2010, which is putting pressure on commodities which are priced in US dollars. Crude-oil is at 6-month lows, copper is at 4-month lows, gold had a reprieve but is again heading to 10-month lows again, while silver is hovering around 15-month lows. This is putting pressure on the mining stocks across the globe, even despite the news overnight of an interest rate cut in China.

The Australian market has been volatile this week, and is trying to hold around the key 4080 level. Sentiment has been mixed, driven by news from the eurozone and hopes of central bank easing. Major market sectors have been tentatively holding on to the support levels of last week.

In our market the defensive sectors continue to outperform, with Telstra, real estate REITs and health-care stocks holding ground, as investors seek out stocks that can deliver consistent yield in this low rate environment. The materials sector continues to underperform on the back of lower commodity prices, but banks found some support as investors turn to dividend yield.

The Aussie market has been trying to find some support again this week, at a level established back in November around 4080. On the S&P/ASX 200 the 4150 level will now be a crucial resistance level and 4080 is again a pivotal level for next week. We have not seen capitulation by the bulls as yet, which could come about if the current weekly support levels are breached, in which case we could see the 3950 and then the 3850 levels tested.

Investors should have protection in place for their capital, and could look to reduce their risk by using options and warrants strategies. With the sustained selling we have endured over the past few weeks we are looking to pick up value stocks that pay consistently high dividend yields, when they reach our buy levels.

In this week’s Analyst’s Eye we discuss a Trading Plan For June, and the D2MX Financial Advisory team can help you trade the themes discussed in this article. Call me on 1300 610 024 for further information. Options remain an excellent form of insurance and are an excellent instrument for speculation.

Remain attuned to the news from overseas, particularly from the eurozone, now that China cut interest rates in its move towards policy easing, and the US, as the US markets trade around their 200-day moving averages. Monitor the performance of Greece, Spain, China and 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 4061 and is testing breakeven levels for the year. Key levels for the index next week will be 3950 and 4180, with 4080 the key short term pivot level.

By Michael Hevern
DMX 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 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.

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Where To Now For the Markets: A Trading Plan For June

Friday, June 8th, 2012

Traders have had a torrid time in the past month with global markets destroying 4.5 trillion dollars worth of equity value in that time.

In the article on Profiting With The Bears we highlighted the cyclical nature of the stock market and how the Aussie market typically pulls back in May and has declined between 14% and19% around this time in the past few years. Well, we have witnessed the first leg of this pullback, with the ASX down 9.5% since its April peak.

We have had a volatile start to trading in June this year. We began the month with severe selling, but in recent days we have seen a relief rally, as traders begin to hunt for some bargains on the hope that we may see a coordinated move by central banks towards quantitative easing.

Trading in June

June is typically a tough month for Australian investors and this year will likely see this theme recurring. Some of the reasons for this seasonally weak period include:

• Investors are recovering from the May sell-off
• Commodity prices typically ease into the new financial year
• Investors look to clean out their portfolios, selling underperforming stocks
• Tax loss selling
• Stimulus from the May Federal Budget often begins in the new financial year

This year investors have the added worries from overseas, and these additional global risks that are driving markets near-term:

• Globally investors are trading in a “Risk-off” environment
• Commodity prices have pulled back severely from their YTD highs
• Problems with a possible disorderly default by Greece, exasperated by their inability to form a new government. The next election is June 17.
• Spain is in the unenviable position of having to recapitalise its banking system at a time when they are having troubles accessing the capital markets.
• The euro zone PIIGS economies are having problems convincing their populations of the merits of the austerity programs they are implementing.
• US growth is slowing and the unemployment rate remains at stubbornly high levels.
• Chinese growth is slowing.

Fear Gauge

In times of uncertainty emotions drive the actions of investors. Traders in the US have recognised this and have devised a measure for fear, called the Volatility Index (VIX).

The Volatility Index, or fear gauge, has proven reliable in the past. The VIX is the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. It is a measure of the market’s expectation of volatility over the next 30-day period. Historically the VIX hits its highest levels during times of financial turmoil and investor fear. As markets recover and investor fear subsides, VIX levels tend to drop.

As stated in the CBOE Volatility Index white paper: VIX is based on real-time option prices, which reflect investors’ consensus view of future expected stock market volatility. Historically, during periods of financial stress, which are often accompanied by steep market declines, option prices – and VIX – tend to rise. The greater the fear, the higher the VIX level. As investor fear subsides, option prices tend to decline, which in turn causes VIX to decline. It is important to note, however, that past performance does not necessarily indicate future results.

This effect can be seen in the VIX behaviour isolated during the GFC Debt Crises in 2008. As the chart below illustrates, the VIX spiked to its peaks as the market suffered through steep declines in mid-2008, and then rallied in early 2009.

Measuring the Fear

The VIX gauge is now moving to elevated levels, which is understandable as the VIX measures market expectations of near term volatility conveyed by stock index option prices. If history repeats then we may well be in a period of continued selling.

As seen in the chart, investors can use the VIX to define their trading strategies according to the underlying mood of the market.

The key levels on the VIX that traders need to be wary of are the 20 and the 40 levels.

VIX Index
Chart 1: S&P500 versus Fear Gauge (VIX)

Risk-Off

As illustrated, when the VIX trades from below 20 and then crosses above 20 it is a time when “risk-off” should prevail. Traders should be looking to protect their portfolios, and look to profit by trading the market short, with the expectation that the volatility is likely to increase near-term (refer to the red dots on the chart). You can see from the chart that we are currently negotiating this type of market.

Risk-On

As illustrated, when the VIX trades down from above 40, it is a signal for more aggressive traders to look at the market for signs of capitulation.

More conservative investors will wait for the VIX to then cross below 30, for confirmation that the market environment is turning to “risk-on”. Traders should then be looking to build their portfolios, picking up bargains and trading the market to the long side, with the expectation that the volatility is likely to contract near-term (refer to the green dots on the chart). You can see from the chart that if history repeats then we are some way off from a bottom in the markets.

Central Bank Intervention

Central banks can short circuit market moves, and can provide the catalysts for a turnaround in sentiment.
In 2012 however, with the situation in Greece and the problems with the Spanish banking system, central banks in the euro zone are unlikely to move until at least July.

In China there is plenty of rhetoric about the government being supportive of the Chinese economy, as the domestic growth slows. China has just cut rates by 25 basis points for the first time since 2008.

In the US the Federal Reserve has indicated that it is not in a hurry to act to provide future stimulus, as Operation Twist is not due to finish until the end of June. The US growth rate is likely to remain between 2% and 2.5% in 2012, but there is the stubborn problem of a jobless recovery. If the Fed has its way it will be waiting for the EU and ECB to “fix” the debt concern issues in the eurozone.

Capitulation

Capitulation happens at market extremes and is often accompanied with an exhaustion gap and a huge spike in volume in the prevailing direction of the trend, as stock ownership passes from weaker hands to stronger hands. It will be interesting to see if this unfolds in our market, given the steady grind lower by the markets since late April. Trading volumes have been relatively low during in this market correction, but have been picking up over the last week.

The Trade

We are evaluating the US markets as a proxy for our market, as the US has been resilient in the move to the upside in the past six months and we expect this leadership to continue for the foreseeable future, at least until the end of the year.

The VIX offers a unique insight into the psyche of the traders driving the market at this time.
We suggest a plan of action as follows:

• Bears are controlling the markets at this time, especially while the markets hold below their 50- and 200-day moving averages.
• Keep a defensive posture until the VIX confirms a turnaround in sentiment.
• “Sell the Rips” in the near-term.
• Look out for capitulation, where the buyers “give up” and step aside.
• Be wary of a turnaround if the market falls around -16% (as it has done in the past 3 years at this time of year).
• Re-evaluate if the market has consecutive closes above the 13-day moving average.

I trust that this information has been helpful. 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.

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