** 25/01/11 - 7.51am - by James Gerrish**
US markets were strong overnight backing up quite an impressive afternoon rally in Australia yesterday. From a technical sense, the US still remains in a firm uptrend while the price action of the S&P/ASX 200 (shallow pullback) is a very bullish set up for mine.
We should see a firm break above 4800 today and the recent high (4839) is the level we now need to close above. Higher low structures are what we want to see and we must remain optimistic about the market while these structures are obvious (See Chart of S&P/ASX 200 above).
Overnight, the DOW JONES added +108 points or +0.78% to close at 11935. in London, the FTSE 100 added +47 points or +0.81% to close at 5943. Locally, SPI FUTURES are matching up +12 points which is a little light however we did have a pretty strong move yesterday afternoon.
It was some more corporate activity in the US last night that prompted buying with Intel announcing that a further $10 billion would be invested in its current share buy back program and raised its dividend by 15%. We keep harping on about this but it's just another example of the cash US corporates have and are now starting to gain the confidence to use. As the US recovery continues to build momentum, this theme is going to become more prevalent.
Inflation - Inflation - Inflation!! Its a term that we're all going to get used to this year with China continuing to battle rising prices while the US would love to have some. It still remains an issue in Australia and the floods will ad to upward pressure on prices (CPI Data out today at 11.30am). China is the biggest issue however as we discussed yesterday, they have a lot of artillery available to tackle the issue and appear to be strongly on the front foot. In the developed world, I believe central banks will be a little more lenient when it comes to inflation targets until we start to see sustained growth in jobs in the US and some parts of Europe.
I'm actually a little perplexed about all the fuss surrounding inflation. Why did governments launch into unprecedented levels of stimulus?? To inflate prices and avoid the possibility of deflation. This is what we're getting now and its the outcome they were looking for.
The current Gold market is a pretty good case in point. The strong rally in Gold came on the back of number of factors. The likely onset of Inflation (fair point), the structural weakness in the US dollar and the fear that Europe and the US would implode. Clearly, the information we're getting out of Europe is more positive particularly the rhetoric from Germany while the US is tracking along nicely. I don;t think these risks have been eliminated however they are loosing some validity. That being said, inflation will be supportive for Gold whilst the need to hedge against lingering uncertainty will be another factor. This means Gold is likely to be in a state of flux for the next few weeks at least.
A positive day on the local market today with the commodity stocks to lead gains. Some stocks we're currently in or looking to enter include: Fleetwood (FWD), Macquarie Group (MQG), Panoramic Resources (PAN), Mineral Resources (MIN), Fortesque Metals (FMG), Western Areas (WSA), Iluka Resources (ILU), Hunnu Coal (HUN), AMP (AMP), Westpac (WBC) & ANZ (ANZ) - as well as the usual suspects of BHP and RIO.
NCM to release production number today and we're looking for 721,000 Ounces.
James Gerrish
(02) 9375 0117
