** 09/12/10 - 9.05am - by James Gerrish**
US stocks finished the day flat, as surging financial stocks outweighed a general decline across the market. The Dow Jones Industrial Average strengthened 13.3 points (0.12%) to 11,372.5, while the Standard & Poor's 500-stock index gained 4.5 points (0.37%) to 1,228.3 and the Nasdaq Composite advanced 10.7 points (0.41%) to 2,609.2. The US dollar also continued its recent run higher, pushing down prices of some commodities and hitting the stocks of materials, energy and industrial companies.
One of the major things to move over the last few days has been the Yield on Bonds. We mentioned this in Tuesday Mornings Note and suggested this may be a strong sign for equities. Money has been flowing out of Bonds and this increases the yield of these Bonds. Joining the dots you can make an argument that this is a positive sign for equities. In fact, some well known commentators are suggesting that this is immensely bullish for the equity market.
Its a difficult call to make and in an environment like this I tend to think its a little less cut and dry than simply 'bonds down - equities up' as some have been putting it - but it is a positive sign and offers some further evidence of potential strength in the equity market.
I have spoken during the week about stock picking. This means that we look for stocks with clear fundamental drivers for growth but only look to buy into them when price action is favourable.
One example of this is AGL Energy (AGK).
See the notes below for some background or request a full research report through the broker contact window.
SUMMARY: AGL Energy (AGK) is one of Australia´s major integrated energy companies. It services the largest retail energy and dual fuel customer base which exceeds 3.2 million. AGK has investments in upstream gas activities and electricity generation that complement long term gas supply contracts along with derivatives to support the retail customer base. Strong growth potential exists within the retail and power generation businesses and the upstream gas portfolio which should deliver above average shareholder returns over the medium term.
TECHNICALS: There are a number of positive technical signs in AGK.
1. The stock has been in a steady uptrend for the last 24 months
2. We have recently seen a pullback in prices from $17 highs back to $15
3. $15 is key support in the stock. This was a previous breakout area which some clients traded up to $15.60
4. A double top indicated likely weakness (circles at the top of the range). A double bottom is now indicting some likely strength (circles at the bottom of the range).
5. The stock broke back up through short term resistance at $16 today.
6. We also saw the stock break through short term moving averages. If anyone is interested, a chart using the Guppy Multiple Moving Averages is attached which highlights this theme.
7. The stock closed on the high of the day confirming strength into the close.
8. I like this trade setup because it combines a fundamentally strong stock that is somewhat defensive in its nature with some compelling technical signs.
