From a technical sense, the USD Index broke below key support
(see chart) last night and this spurred strong buying in the commodity markets. Gold was up strongly settling at $1392
(see chart), Crude Oil traded more than $2 higher to $86.64
(see chart)and the broader sweat of base metals were more than 3% higher. It was really a USD story and as we've been suggesting for quite a long time now, the USD is structurally and fundamentally flawed and that suggests only one way for the Greenback in the months to come. This obviously filtered into the Aussie Dollar which hit $1.02.
(see chart)
The DOW JONES added +219 points or +1.96% to close at 11434. In London, the FTSE 100 added +113 points or +1.98% to close at 5862. Locally, the SPI FUTURES contract is suggesting an our market will open up +74 points when trading kicks off this morning.
The Dow Jones traded at its highest level since just before the Lehmans Brothers collapse more than 2 years ago. If we look for other indicators of strength, the Volatility Index which has an inverse relationship with the equity markets, was sold down 5.3% overnight. The VIX as its known, measures the cost of insuring an equity portfolio using index put options.
(see chart). It essentially means that there is very little demand for downside protection at the moment.
So this prompts the question...How do we play this market from here...?
1. We need to be long stocks as it appears the market is odds on to reach 5000 before year end (if not month end)
2. Do we buy today? Probably not. I think the market will open sharply higher and there will be a risk of some type of profit taking as the day progresses.
3. We need to be focussed on a stock specific level. Below is a short list of stocks that are presenting some interesting characteristics and may offer some strong upside potential in the near term. There are specific levels that each stock would need to satisfy before entry.
Woodside Petroleum (WPL), Western Australian News (WAN), TOLL Holdings (TOL), QBE (QBE), Pan Aust (PNA) - Copper , Equinox (EQN) - Copper, Hunnu Coal ((HUN) - Mongolian based coal producer - one of my favoured spec stocks at the moment, Origin Energy (ORG)
Enjoy the green on the screen today!
By James Gerrish
(02) 9375 0117
