Morning Note - Bullish close in the States

by James Gerrish 25 February 2011

** 25/02/11 - 8.57am  -  by James Gerrish** 
 
  • I was up pretty early this morning watching the last couple of hours of trade in the US and what I saw was quite encouraging - in the short term at least. 
  • If we look at the string of recent losses on the DOW JONES it seems that sellers are losing some steam. 
  • On Tuesday we saw a drop of more than 200 points as the fallout from Middle East tensions caused concern. On Wednesday's session we lost 107 points however 40 points of that could be put down to Hewlett Packard missing estimates while last night, we saw the DOW JONES off by 37 points - after seeing a low of -122 points in early trade.
  • So it was a pretty strong recovery in the sessionthat actually saw the Nasdaq higher, the Russel 2000 was higher and the S&P 500 was just 1 point off positive territory.
  • Oil was even sold downas were other safe haven assets such as GOLD while Copper, which has been down for the past 7 sessions bounced +1.4% 
  • The main concern in the market at the moment is the impact of high Oil prices on Growth. This will only have an impact if Oil remains at high levels for a sustainable period of time so whether or not this will happen is any ones guess. 
  • Ultimately I think the structural shifts occurring in the Middle East will be a positive but as with any change in the status quo, they'll be volatility associated with it. 
  • But if we focus back on the US economic recovery, we did see some positive data out overnight that showed fewer Americans than forecast filed first-time claims to collect jobless benefits last week, indicating companies are reducing the pace of firings as they grow more confident in the economic outlook. 
  • This led to an uptick in consumer confidence figures which is also a positive. 
  • Locally, we've almost completed the reporting season with companies wrapping up on Monday. 
  • The front page of the AFR this morning paints a pretty sombre picture of company earnings outside of the mining and energy sectors. 
  • That’s true, but I think the market has been more concerned about the future prospects and guidance than last year’s numbers. We saw this in Fairlfax (FXJ) yesterday who delivered a fairly positive result that came in-line with market expectations but the company gave no forward looking guidance - it was sold down as a result.
  • Origin Energy was also worthy of a mention yesterday with the costs associated with the acquisition of NSW Power Assets a major drag on their results + they also think they might need to raise capital.
  • When the power deal was announced I was actually long AGL Energy (AGK) which was sold down as a result.
  • I held the stock after listening to the conference call with management as they outlined a more organic growth strategy - which I was quite positive about. That call has been wrong with AGK being sold down ever since.
  •  I'm still a holder and using valuation as my main reason for doing so and I noticed a couple of broker upgrades coming through on the stock yesterday after origin disappointed the market.
  • I think its worth keeping an eye on AGK especially when long term support sits around $14
  • Another stock that looks quite interesting is one Charlie Aiken was pushing yesterday. Jupiter Mines (JMS) which is a Manganese miner. It’s got a pretty impressive register of existing share holders and recent price weakness could be a strong opportunity.
  • I always like to see support coming into a stock that has been in a downtrend before picking it up so another positive day today would be encouraging. 
  • On the market this morning, SPI FUTURES are pricing in a drop of -12 points but I think we’ll see some more positive flow today than the last few days.
  • Stocks trading overseas
    • In New York, News Corp rose by US$0.14 to US$17.84, equivalent to A$17.69, A$0.07 above its last close on the ASX.
    • ResMed fell by US$0.36 to US$31.12, equivalent to A$3.09, A$0.04 below its last close on the ASX.
    • In London, Rio Tinto fell 37.0 pence to £41.70, A$0.59 lower in Australian currency terms.
    • BHP-Billiton rose 30.5 pence to £23.68, A$0.49 higher in Australian currency terms.
    • Henderson Group Plc fell 3.5 pence to £1.57, A$0.06 lower in Australian currency terms

Disclaimer

James Gerrish is an Authorised Representative (Rep No. 352904) of Shaw Stockbroking Limited ("Shaw Stockbroking"). Shaw Stockbroking is a holder of Australian Financial Services Licence No 236048. Shaw Stockbroking, its directors, officers, associates and employees each declare that they, from time to time, may hold interests in financial products and/or earn brokerage, commission, fees or other benefits from financial products mentioned in this e-mail or attached documents. Unless specifically stated within this page or an attached document, any information communicated by this e-mail constitutes unsolicited general financial product advice which has been compiled without regard to any investor's individual objectives, financial situation or needs. It is not specific advice for any particular investor. Before making any decision about the information provided, you need to consider the appropriateness of this information having regard to your individual objectives, financial situation and needs and consult your adviser. Any indicative information and assumptions used here are summarised and also may change without notice to you, particularly if based on past performance or relate to a future matter.
 

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