**09/09/10 - 7.20am - by James Gerrish**
There is no doubt that we're at critical levels on the local market with the S&P/ASX 200 trading just shy of 4600. This level has provided a strong degree of resistance in the past and the last two trading sessions have been no exception. We could see this level provide a ceiling in the market however I've got a more optimistic view this time around. I do think that we'll break through 4600 in the next few trading sessions and this has the potential to set up a more prolonged rally towards 4800.
Staying on the technical theme, both the Dow Jones and the FTSE 100 have formed more bullish patterns in the market. The higher low structures (as shown on the charts below) , are the first indication that a longer term uptrend may be starting to work its way out. This is bullish as it shows that sellers have started to lose the upper hand. That buyers are stepping in and seeing value at higher levels than was evident during the last round of pessimism.
Overnight, the DOW JONES added +46 points or +0.44% to 10387. The FTSE 100 rose +21 points or +0.4% to 5429. Locally, SPI FUTURES are suggesting a rise of 30 points when trading gets under way.
Looking at the US Dollar, it really typifies the indecision that we are seeing in the market at the moment. Viewing the chart,, you can see that it suffered a strong sell off when risk appetite came back on the table and defensive assets (such as the Dollar) were sold down.
We're now seeing that after a bounce its showing signs of rolling over again. This is important because it shows the trend of money flow and a move out of the USD, which I think is starting to occur again, will underpin a bounce in the commodity markets and commodity backed currencies like the Australian Dollar. A few months ago on Sky Business, I made a call that we'd see the Aussie trade to 93c in the next four months. This gave a target of around November which from what I'm seeing now, is looking on track. I think invariably, the Aussie will trade a lot higher based a fundamental weakness in the USD over the next few years and we'll come close to parity again.
Last night we saw another piece of supportive data out of the US with job openings in July rising 178,000 to 3.04 million showing signs that companies (in some areas) are looking to expand their workforce.
Another interesting release came from Goldman Sachs who put out a report about emerging markets predicting the value of Stocks in these economies will surge to $80 trillion. As it stands developing countries account for about 31% of world equity capitalization and Goldmans think this will rise to about 55% by 2030. The primary driver it says is "rapid economic growth". Another piece of supporting data that shows the importance of investing towards emerging markets.
James Gerrish
(02) 9375 0117
