James Gerrish - Morning Note - Monday 6th September

by James Gerrish 06 September 2010

**06/09/10  -  7.20am  -  by James Gerrish** 

It seems I should go away more often with the US market up nearly 4% last week as broader Macro data started to show signs of improvement. We have continually spoken about the importance of the employment situation in the US as the main driver for a sustained recovery and we saw a positive surprise in the numbers when they were released on Friday. The biggest driver was growth in private sector jobs which we believe will continue given the strong position of US Corporates as shown by the last reporting season. 

On Friday, the DOW JONES added +127 points or +1.24% to10447. The FTSE 100 rose +57 points or +1.06% to 5428. Locally, the SPI Futures contract is pricing in a rise of 50 points - so another positive session is expected today. 

I find it quite comical that the incredibly pessimistic commentators find there voices when the market is falling but are no where to be scene when the market is once again rising. I'm under no illusions that we're going to have a carefree run up in the market from here, but I think last weeks action will give more confidence that a double dip scenario is highly unlikely. 

The data out of the US, although lumpy as we've suggested for quite some time, is improving gradually and thats what we want to see. Bear in mind that for any economy that has relied so heavily on leverage for growth in the past will have subdued growth in a somewhat de-leveraged environment.   For the sizzle we turn to emerging markets and the growth there we've been harping on about for a long time. This remains our core theme for investment. (see Emerging Growth Portfolio Here). You'll notice that the portfolio is partially covered  with December Putt Options to mitigate some of the potential downside risks. This was done at a manageable expense. 

I think the chart of Copper pretty much tells the story here. Back in June we highlighted the contracting wedge formation that was playing out which pointed to a target which we finally reached on Friday. Copper is a very strong and pure indicator of economic expansion and its recent rise is encouraging. Copper stocks on the local market that we like include Pan Australia, Sandfire, Equinox and Oz Minerals, however these stocks have had a great run up in recent weeks so we'd be cautious at current levels. Gold stocks are also worth noting as most also mine Copper as a well. i.e Newcrest Mining. 

One important feature to note, is that conviction in this recent rally has remained light with volume very lethargic. This means that although we remain optimistic about the prospects in the market, we make decisions with a degree of caution and this is largely based around smaller position sizes with the view to add to them when conviction does eventuate. 

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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