Morning Note - A looks at the current news flow

by James Gerrish 23 March 2011

** 23/03/11 - 8.43am  -  by James Gerrish** 
 
  • Stocks finished marginally lower overnight ending a 3 day rally. The small decline came of very low volume with the DOW JONES trading in a tight range of 48 points. 
  • The Dow finished down 17.90 points (0.15%) at 12,018.63, while the Standard & Poor's 500-stock index fell 4.61 points (0.36%) to 1,293.77 and the Nasdaq Composite fell 8.22 points (0.31%) to 2,683.87.
  • Leading the declines were industrial and consumer-discretionary stocks
  • SPI FUTURES are pricing a drop of -9 points on the open this morning.
  • So we've had a pretty sharp market fall, a three day bounce so the main question becomes - what next??
  • Its times like this there are so many conflicting assessments of the current situation - reading anything with a technical nature that involves Elliot Wave principles and they're suggesting that we'll get a significant wave three down - some with projections of 10250 targets on the DOW!! 
  • A break of the Feb 18 highs would negate this call however whatever way you look at it, those with a bias towards Elliot Wave are likely to be bearish on the market. 
  • However momentum indicators (such as Stochastic) have given clear buy signals after ticking up from oversold levels - the trend in the US market remains up so one would use these measures to buy into the dip. 
  • This is supported by the fundamental viewpoint which centres on current valuations being extremely cheap in an improving economic environment (S&P 500 trading on 11.4 times forward earnings).
 
  • Looking at the news flowand we see that the Japanese nuclear situation is showing tentative signs of improvement. 
  • The Middle East situation as we discussed yesterday will be around for a while but has the potential to escalate quickly - this is a major threat in the market at the moment. 
  • Data in the UK last night showed that inflation ticked up the most in two years putting more pressure on the Central Bank to look at raising rates - although I think this will be at least few months off. 
  • While in China the Central Bank there increases capital requirements on banks again to help manage growth, although it seems the market now just takes this in its stride. 
  • Anyone reading these notes over time would know I'm more bullish on the market than bearish. I think we've had a number of events that have rocked confidence short term but the outlook for coordinated global growth still appears strong - that is growth in developed economies supporting the expansion in the emerging markets. 
  • I believe we need to focus on stocks that have exposure to ENERGY, FOOD, US INFLATION (& RECOVERY) and supplementing this with  high income producing shares (such as the banks at current levels)
 
AUSTRALIAN STOCK PRICES OVERNIGHT
 
  • In New York, News Corp fell by US$0.01 to US$17.68, equivalent to A$17.50, A$0.12 below its last close on the ASX.
  • ResMed fell by US$0.07 to US$30.46, equivalent to A$3.01, A$0.02 below its last close on the ASX.
  • In London, Rio Tinto fell 40.5 pence to £40.17, A$0.66 lower in Australian currency terms.
  • BHP-Billiton fell 29.5 pence to £22.75, A$0.48 lower in Australian currency terms.
  • Henderson Group Plc was unchanged at £1.61.

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.
 

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?