Morning Note - Stocks rebound with risk back on the table

We saw the worst of yesterdays market in morning trade before Asian investors stepped in around 11.10am and started buying into the weakness. The S&P/ASX 200 was down 72 points at its worst before closing down 30 points. The main concern early was based on the rate rise in China (first time in 3 years) and was obvious that local investors were pricing in some type of negative bias in the Chinese share market. 

This didn't happen and we actually saw strength in the Shanghai Composite (see chart). Looking at it from a technical perspective, it is now approaching the first target based on the depth of the previous consolidation pattern (ascending triangle). Its been an impressive bounce and shows local Chinese confidence in the market.  

We wrote yesterday that..."We'll be sharply lower on the open but it will be interesting to see how much HOT money is in the market - thats speculative money just trading the momentum rather than the fundamental value in stocks. Still, the consensus in the dealing room this morning is that the market looks ripe for a sharp pullback. My concern here is that perception changes on a daily basis. Those guys that were happily buying stock last week have now turned intensely bearish overnight. That might be the right call however I'm more in the camp of a pullback that will see buying support step in..." 

On the market last night, the DOW JONES rallied more than +129 points or +1.18% to close at 11,107. In London the FTSE 100 rose +25 points or +0.44%. Locally SPI FUTURES are matching +24 points higher.

The risk trade was back on the table last night with commodities seeing some aggressive buying (Crude +3%, GOLD +0.61% and Copper +1%). The commodity index added 6% on the session (after being down 5% yesterday). Its an uncertain market at the moment and in an environment like this, I pays to be cautious. 

Looking ahead I do think there will probably be some type of correction (only marginal rather than structural) in the coming weeks. If we're looking for some weakness then the start of November could make sense. The Federal Open Market Committee (FOMC) in the US meets on the 2nd and they need to lay out detailed plans for Quantitative Easing. Its been discussed for such a long time and the market has rallied on the speculation that will eventuate but we're yet to actually see it. 

If we don't get the level of stimulus expected (market pricing in around a $500 Billion package) then the USD will bounce which will undermine the current rally in commodities and commodity currencies. There is no evidence that the Fed won't act (all indications say they will) however its something we should be aware of. We also have the mid term election in the States on Nov 4.  

There was interesting company stories out yesterday with James Packer launching a good old fashioned share raid on Ten Network (TEN) taking 15% of the company and sparking additional interest in the stock as well as the media sector.  

Yesterday was a day for Telstra (TLS) to shine - a down market - everyone shunning risk assets yet the stock still fell. The Future Fund has confirmed that it sold another 113.6, shares over the last few weeks at an average price of $2.66. They've still got about a Billion shares to go so until this significant overhang is worked out - Telstra appears to be going no where. 

Origin Energy (ORG) had an interesting day yesterday down more than 4% in early trade after reports of Cancer causing contaminants during the exploration in a number of its CSG wells. A strong recovery after some initial weakness shows the markets initial concern was unfounded and the news will have no material impact on its operations. UBS supports this view increasing their price target by 50c to $18.14