On Friday's session in the US Non-Farm Payrolls data (key employment stat) came in considerably lower than expected with just 38,000 jobs being created last month. This was against a market consensus of +140,000 jobs. To put this into context, the market ran up very strongly at the start of the week on Private Sector employment figures which often give a strong indication to the more comprehensive labour department data that came out on Friday. This wasn't the case this time around yet the market remained resilient and held onto the weeks gains.
This was another example of the market remaining resilient in the face of disappointing data. We've seen this trend over the last few weeks and to me, its become apparent that investors are holding stocks on the view that the bigger picture, particularly in the US is starting to show signs of improvement. So here's some facts about the current market.
1.
Key indices in Australia and the US stayed above support. It was thoroughly tested and remained resilient. I find looking at recent trends in price action can tell you a story that is void of personal bias and broker/media spin. In the S&P 500, the support area that needs to hold is 1170. In the S&P/ASX 200, support sits at 4570.
2.
Commodity markets have bounced strongly. The best example of this is Crude Oil which traded at its highest price since 2008 overnight and was only 25c off $90 a barrel. Crude Oil is meant to be the barometer of US economic activity and has been a major under performer during the recent spike in commodities. The move in the last few weeks corresponds with improving US economic data (employment data on Friday was one exception). If you look at price action, Crude has broken out from key resistance on the weekly chart and for mine, higher prices will come. Gold is in a similar boat breaking out of consolidation overnight.
3. 10 year bond yields in the US have bounced from lower levels even with the US Treasury's plans to buy debt through Quantitative Easing. Bond yields have an inverse relationship to bond prices. So when bond prices go down, Yields go up. When bond prices go up (because of increased demand), then yields fall away. Given the Treasuries plan to buy up to $600 billion worth of Bonds, you could think this would have forced prices higher (increased demand) and yields lower. However it appears that demand from non-government investors is declining. Bonds are considered a safe haven asset and thrive in times of economic uncertainty. Recent data out of the States seems to have reduced the appeal of bonds which presents the obvious question - where does the money go? Potentially the Equity market.
(SEE CHART of 10 Year Treasury Yields)
What does this mean for the market? I think the market is still in no mans land however it is showing strong signs of moving higher towards the end of the year. Selective stock picking can occur at this stage. I will more confident if the S&P 500 breaks above the resistance which is shown on this weekly chart of the S&P 500
(SEE CHART) . This sits around the 1240 level.
Stocks I'm watching: Mineral Resources (MIN). I will be putting a trade note out on this today. I have also been trading CSL
(SEE RECORDING).
Riversdale Mining (RIV) is in our Emerging Markets Model Portfolio. RIO has put an offer for RIV at $15 a share. This is a low ball offer and RIO will have to increase this before a a deal will be done. We will retain the holding in the Model Portfolio. RIV currently trading at $16.31 To see our Model Portfolio's
CLICK HERE.
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On the market last night, the DOW JONES lost -19 points or -0.17% to close at 11362. In London, the FTSE 100 added +24 points or +0.43%. Locally, SPI FUTURES are pointing to a drop of -2 points when trading kicks off.
James Gerrish
(02) 9375 0117
