End of Week Market Wrap
Markets have again backed off their highs for the week, as US Federal Reserve members talk of tapering stimulus as early as September if the US economy continues to improve. Traders are ending the week cautiously, but commodity prices remain elevated.
US stock markets continued to sell off this week, down seven of the past nine sessions on disappointing earnings results and continuing concerns that Fed tapering could begin as soon as September. The three benchmark indexes have recorded their biggest one-day falls since early June. The S&P 500 is below 1700 but is still up around 16% for the year. The CBOE VIX Volatility Index, a gauge of S&P 500 option prices and which measures the cost of protecting against swings on the S&P 500, spiked higher to 14.7 for the session.
Commodity prices continued higher this week with gold at 8-week highs, silver entering bull market territory and crude oil elevated due to the unrest in Egypt. At the end of the earnings season 72 percent of the S&P 500 companies that have reported earnings have exceeded analysts’ estimates, with 56 percent beating on sales projections. Earnings rose 2.8%, according to Bloomberg.
European stocks markets reached 10-week highs this week, as the markets continue to be supported by the ECB and GDP figures which are showing signs that Europe is starting to recover from its worst recession on record. The eurozone GDP expanded by 0.3 percent in the June quarter (compared to a -0.3% contraction in the prior quarter and a -0.7% contraction in the same period last year). The two biggest economies led the way with Germany expanding 0.7 percent and the French economy GDP growing 0.5 percent, both ahead of forecasts. Sellers are prevailing towards the end of the week though, with concerns over the US stimulus tapering and the unrest in Egypt.
Asian markets have risen five of the past six sessions. The MSCI Pacific Index remains at around 10-month highs, as the miners led on the back of recovering commodity prices. 50 percent of the 450+ companies in the Asia-Pacific index that have recorded quarterly results have beaten projections, according to Bloomberg.
The Chinese Shanghai Composite is higher for the week, extending its longest winning streak in four months on the back of last week’s better-than-expected trade data and Chinese annual inflation remaining at 2.7% in July.
In Hong Kong the markets were disrupted due to Typhoon Utor, and resumed on a cautious note.
The Japanese market is finishing the week at the bottom of its range, with the market selling down overnight as export stocks fell on the back of a stronger yen and caution persisted around whether the government would introduce a corporate tax cut.
In today’s Analyst’s Eye we discuss a possible silver trade in Silver Lining – Trend Identification.
The Aussie market is ending the week cautiously, as the corporate earnings season gets underway on the ASX. The Australian dollar has held above its three-year lows, and is trading around US91.5c on the back of stronger commodity prices.
The market has bounced from the lows of last week supported by a broad move in the miners. The materials sector jumped another 3% from its lows of the week and bank stocks are up 1% for the week. Gold stocks saw some bargain hunting as the gold price hit 8-week highs, while the utilities sector continues to trade lower, down another -2.3%.
Investors should be looking to take this opportunity to protect their portfolio near-term and build their positions in the high yield stocks. The ASX 200 and All Ords have bounced this week and are holding around the highs of the past couple of weeks.
Key levels for the ASX200 index next week will be 4980 and 5180, with 5080 the key near term pivot level. Note volatility picked up again this week, as the market continues on its quest to climb the wall of worry.
Investors should be looking to use options strategies in order to reduce risk and can also use warrant strategies for income and hedging strategies.
Remain attuned to the news from overseas, particularly from the eurozone (debt), China (stimulus) and the US (tapering). 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 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.
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.