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

• Bank results were marginally disappointing with some softness in revenue. This was offset by smaller than expected bad loans so the nett result were broadly inline. This does however show a weakness in core earnings which is a concern. ANZ delivered the standout result and remains our pick in this sector. 
• Telstra delivered a disappointing result which shows the significant competition now within this sector. Tough times ahead for the telco
• Building stocks were broadly solid. Those with US exposure suffered (James Hardie) while Domestically focussed operators were showing sign of improvement namely Stockland and Australand
• There were improving retail trends with DJ's and Myer delivering strong number. Harvey Norman is due out this morning and we're expecting some of the same. We also saw stronger than expected consumer trends which was evident in Flight Centre and Qantas 
• Material stocks delivered as we expected with earnings up on higher metal prices and continued demand from emerging markets. BHP increased its dividend to try to appease shareholders while it targets Potash Corp. Gold stocks were also a high light with Newcrest and Lihir Gold
• Industrial companies were the standout with with AGL Energy, Toll Holdings and Asciano all impressive
• Media stocks have mixed with West Australian News disappointing, Newscorp Solid and Fairfax just out this morning a real standout. Fairfax is the most short sold stock on the market so i would expect some significant short covering this morning and a strong bounce in price. 
• Outlook statements have been conservative and this reflects the uncertain global environment
• Have faith in emerging markets growth - this is the story that we're investing towards. 

**20/08/10  -  9.01am  -  by James Gerrish** 

There is quite a bit of scepticism in the broader investment community about the benefits or validity of technical analysis - about investing based on underlying patterns of price and volume. I'm keen on technical analysis as an overlay for longer term investment decisions and the primary form of analysis for shorter term trading positions. 

Last week, one of the most successful hedge fund managers in the US closed his firm and retired after amassing a fortune of more than $2.8 Billion personally, and averaging 30% annually since 1986. Stanley Druckenmiller owned and ran Duquesne, a New York based fund with $12 billion under management. Druckenmiller was a Macro Hedge fund manager that aimed to profit from the broad based economic themes that were playing using a combination of investment products (stocks, options, bonds etc). 

In an article reported  in Bloomberg recently, Druckenmiller said his success was in part due to lessons he learnt from his mentor at his first job at Pittsburgh National Bank, Speros Drelles. Drellas taught him to use technical analysis to help gauge whether prices were poised to jump, while most analysts were relying on a companies financial reports on whether to buy the stock. If the company had good charts, supporting fundamentals and fit with the current marco theme, he would ad it to his portfolio. He was very much of the opinion that price should be a large dictator of investment decisions as price would ultimately be the determinant of profit or loss when the position was wound up. 

This is how we like to model our investment strategy. We decide on an overall theme that we believe will play out over the medium term 1-3 years. We look at companies that fit that theme on a fundamental basis then invest in them when price action gives us a solid foundation or probability for a favourable move. 

The theme we believe will play out over the next 1-3 years is a disparity between developed and developing economies. Developing economies will support global economic growth so we look to Australian companies that are exposed to the growth in emerging markets. 

Looking more broadly at the over arching technical structures that are currently playing out in the market, we need to turn to the US as its still by far the largest economy in the world. 

The S&P 500 & Dow Jones Industrial Average are forming a longer term head and shoulders - which is a bearish technical pattern. This pattern may not complete however our line of thinking suggests that when these patterns are evident there is a greater level of risk to the downside. SEE CHART HERE OF THE DOW. This means that we remain confident in our overall theme in the market, however the price action of the major markets are causing some concern in the near term. This may allow us to gain exposure to this theme at lower prices in the coming weeks. 

Last night, the DOW JONES lost -144 points or -1.39% to 10271. The FTSE 100 lost -91.58 points or -1.73% to 5211. Locally the SPI Futures are matching 67 points lower. 

18/08/10   - 8.27am   -  by James Gerrish 

BHP Billiton (BHP) made a $US38.56 Billion bid for Canada's Potash Corp last night showing that companies are looking to put money towards growth. For those that are interested, Potash is the common name for Potassium Carbonate and about 93% of the worlds reserves are used in fertilizers as it improves water retention - Potash Corp is the world’s largest fertilizer company. 

Potash Corp has rejected the bid and BHP may need to go hostile or raise the bid substantially (towards $US150 per share). BHP could fund the deal by debt given it has one of the lowest net debt to net debt plus equity ratios in the industry at 15.1% as of the end of 2009. BHP's gearing ratio would rise to about 30% if the company upped the offer to $US150 a share (from the current $US130). 

BHP already has a Potash asset with its Jansen project (slated to produce 8 million tonnes by 2026) and the deal would give BHP access to Potash Corp's Burr project which is next door to Jansen - promoting synergies. An interesting proposal (long shot) from BHP and one that might see the stock under pressure in the near term. Longer term, I think its a great play and further leverages BHP to growth in emerging markets if they can pull it off. 

Incitec Pivot (IPL) is a local producer of Fertilizer and could be in focus today as the market prices in some takeover premium. 

On the market last night, the DOW JONES added +103 points or +1.01% to close at 10405. The FTSE 100 added +74.45 points or +1.41% to 5350. Locally, the SPI Futures contract is pricing a modest rise of 10 points on the open after our strong day yesterday. 

Risk came back on the table last night, with commodities rising, the USD falling and Treasury Yields up 7 basis points. The move into Treasuries (Government Bonds) has been a key discussion point over the last week or so. Traditionally, Treasuries are a safe haven asset and the significant flow of funds into this asset class has been a major talking point. Demand for Treasuries increases in times of uncertainty and at the current Yields (around 2.63%) it seems to be pricing in a double dip scenario. We don't expect this to play out and we think that Treasuries are incorrectly pricing such a probability. Why buy a 10 year treasury generating 2.63% instead of Aussie stocks that are yields 6% with potential for capital gain over the longer term?

A number of company reports out today including Boral (BLD), Centennial Coal (CEY) Connect East (CEU), CSL Limited (CSL), The Reject Shop (TRS), Woodside Petroleum (WPL). Let me know if you'd like an over view of any of these results. 

Current equity markets have an outlook of about 5 minutes at the moment making this Gold Fish a pretty accurate analogy of current investor psychology. Why? Because recent economic data out of the US has been below expectations and we're now seeing a revision down in growth forecasts. From my perspective, I don't believe this is new and anyone who has taken even a glancing interest in the US economy would realise that unemployment is still near 10% and this flows through to other measures - the main one being consumer spending. 



One aspect that I believe people underestimate is the level of cash on the balance sheets of Corporate America - We saw some tentative signs that capex spending was increasing (from recent reporting season) and this should play an important role in the slow (boring) recovery that we're seeing out of the States. 

But its important to look at the theme we suggest to invest towards - Avoid US/UK exposure - focus on emerging markets growth. A pretty important thing happened yesterday with China overtaking Japan as the second biggest economy in the world. To put this into context, China's nominal Gross Domestic Product for the second quarter totaled $1.337 trillion topping that of Japan at $1.288 trillion. Japan still has a higher annual GDP but this won't be the case for long. The total US GDP is $14 trillion (Australia is $925 Billion) and we're expecting China to become the biggest economy in the world by 2020-2030. This is HUGE..! 

Just across the ticker we had One Steel (OST) report above market expectations sighting a record profit out of Asia. We spoke about this theme in Coke's (CCL) results last week when the company showed significant growth from its Indonesian operations. 

On the market last night, looking only at the headline numbers would give a pretty anemic outline of market action. The DOW JONES lost -1 of a point or -0.01% to 10302. The FTSE added +0.66 of a point or +0.01% to 5276. It was important to note however that the DOW finished +94 points from the session low so a spirited recovery from early weakness did play out.  (Volume was the lightest YTD however) 

There was also a tentative move back into risk assets that have been sold down aggressively last week. Commodities bounced, the US Dollar fell and the Aussie found some support on a critical level of 88.5c. Gold continues to find support and we anticipate that Gold will retest recent highs around $1261.

On Friday, the DOW JONES lost -16 points or -0.16% 10303. The FTSE 100 added +9 points or +0.19% to 5275. Locally, SPI FUTURES are suggesting a drop of 50 points so a negative open for the market today. 

Last week we saw sentiment change as economic data from the US refocused attention back on the speed of the US recovery. Employment is the dominant indicator here given it flows through to other measures and unfortunately last week, the market was disappointed with the level of employment growth last month and was shocked by the downward revision of the June figure. 

We've been saying for quite some time now that our belief is that the US recovery will be slow and it would be better to have money exposed to growth of emerging markets. However it's important to note that the US is recovering. Despite what is pushed by market commentators we are seeing an improving situation in the US. Employment, although a lagging indicator is improving with jobs being created in the private sector - Not enough jobs but we are seeing some growth. This is further supported by a rise in average hours worked so companies are getting more from their existing workforce.  Employment data will continue to be the main driver of sentiment in the market near term. 

Last week we also saw the Federal Reserve act to improve liquidity in the system in another attempt to prop up growth - in what's now being touted an QE2 (Quantitative Easing Mark 2). It does confirm that the US recovery has slowed but it also shows the intentions of policy makers to do what is necessary to support growth. 

Looking at the investment landscape that we all need to operate within, there is no doubt there's a higher level of uncertainty based on last weeks events. On Fridays note we touched on the bearish technical structures that are now playing out. For those that want to recap  ("The market has made a lower high structure which is bearish. A shorter term double top is obvious in the S&P 500, and if you're into Elliot Wave, we got the possibility of a three wave corrective move playing out.') 

In this environment, I think its important to reaffirm our process for investing. 

1. Invest for a theme - This should be the overall framework for any investment decision. Our theme is: a) target growth in emerging markets b) avoid exposure in developed economies. Example: Buy ANZ rather than NAB - TOLL rather than Brambles - Coke rather than Fosters

2. Develop a universe of stocks that fit this theme - This will reduce the number of stocks that we need to be across. 

3. Don't underestimate price action - at the end of the day, the price of a security is the most important element of an investment. Recent trends in price action can tell you a story that is void of personal bias and broker spin.

4. Be active in managing risk when uncertainty increases - Invest during good times with the knowledge that we can manage risk by using Option Contracts in times of greater uncertainty. 

This week, reporting season intensifies and you'd have to say that so far, its been a little disappointing. Today we see Bluescope (BSL), Leighton (LEI), Lend Lease (LLC) & Newcrest Mining (NCM).     

Overseas markets drifted lower again overnight on the back of another underwhelming piece of employment data out of the US. The theme of selling risk continued with the Bond market an obvious place to see this phenomenon play out. Over the last six weeks there has been high demand for lower grade, high yielding bonds but in the last couple of days, demand has faltered - forcing yields higher. This fits with a pullback in equity markets and commodities while demand for the US dollar & Gold (safe havens) has increased. 

On the market, the DOW JONES lost -58 points or 0.57% to close at 10319. In the UK, the FTSE 100 added +20 points or 0.4% to 5266. Locally, SPI FUTURES were down -11 points at 4346. 

Its quite interesting to see the level of bearish literature that starts filtering out as soon as weakness comes into the market. I do agree with many of the technical views that are making the rounds - The market has made a lower high structure which is bearish. A shorter term double top is obvious in the S&P 500, and if you're into Elliot Wave, we got the possibility of a three wave corrective move playing out. 

I'm certainly conscious of these structures in the market and I'm a big believer in letting price action be the overall determinant of investment decisions. Price action at the moment is suggesting to increase cash or protect portfolio's with options and this is the strategy that we have employed in the model portfolios. 

In saying this, we remain confident in the theme we've been discussing for the six weeks or so - that risk assets that are leveraged to emerging market growth will outperform over the medium term and this is where the majority of money should be allocated.

Yesterday we saw some mixed results from Australian companies. A highlight was Coca-Cola Amatil (CCL) which reported ahead of expectations and gave an upbeat outlook (high single digit growth) for next year. One of the interesting aspects of the result was the significant growth (+20%) in Indonesia. At the moment its a very small part of their business but it will expand quickly -  but more importantly its another example of why investing for Asian (emerging markets) growth is important. 

Contrast this with James Hardie's result which came in slightly below expectations. JB Were writes this about the result..."Geographically, the result was supported by a strong performance in the Asia Pacific region with the US and Europe fibre cement division performing below expectations..." 

The US market threw its hands in the air last night and dumped stocks across the board. The reason being pushed by commentators is that the Statement from the Federal Reserve yesterday showed that the US recovery was weakening while data from China showed that industrial output rose the least in 11 months. To me this is pointing out the obvious - we know that the US recovery is weak and the move by the Federal Reserve to initiate more stimulus should be supportive of equity markets while in China - they've openly flagged their desire to slow growth to more manageable levels and all the evidence so far suggests they're managing that slow down effectively. 

Last night the risk trade we've been discussing for the past month or so unwound in pretty spectacular fashion. You need only look at the US Dollar to see the strong buying of defensive assets. The market is continually looking for reasons for particular moves and we constantly here experts come out after the fact to explain why the market acted the way it did as if it was all very obvious before hand. Its irritating and the reasons that were given for last nights move were not new. I'm more a believer that we over extended to the upside, investors got nervous and the Penguins started to jump. We essentially got too optimistic about theRECOVERY THAT STILL IS OCCURRING.  Thats an important point. The recovery is still under way and although we are going to have blips in economic data and subsequent concern from the market, the trend is improving. 

We continue to believe that companies with exposure to emerging growth (ASIA, LATIN AMERICA etc etc) will outperform those that are exposed to developed economies such as Europe and the US. Sentiment from US and Europe will continue to dominate but this theme towards risk and growth, will reemerge and this pullback in the market could present an opportunity to gain exposure to this theme. I think its important to note however that when we look at stocks, price action is the biggest determinant for entry. The market remains range bound and unfortunately we're not getting any real impetus to push us above the current range. 

As we suggested yesterday, sentiment can change on a dime and near term, the market has turned bearish. Risk assets are now out of favour and would be prudent to increase cash in portfolio's or hedge using options. 

On the market last night, THE DOW JONES lost  -265 points or 2.49% to 10378. The FTSE 100 lost -131 or 2.44% to 5245. Locally, the SPI FUTURES lost -80 points. 

Last night the US Central Bank outlined plans to roll over its holding of Treasury Securities as they mature to maintain their exposure and stop money flowing out of the system.  Essentially, this is a form of quantitative easing that means the Government buys its own securities to help stimulate or maintain growth. Its really a double edged sword and the market can take it two ways. 

1. It's an admission that the US economy is not recovering as fast as they had originally predicted. 
2. It shows the willingness of US officials to pump more stimulus into the system to support growth if economic data continues to be soft. 

If we take a step back and look at the measures used by the Fed during the GFC, we can get a better handle of where we are now. 

- Interest rates were cut aggressively down to basically zero - they reiterated last night that this setting would be kept in place for an 'extended period'. Our view is that rates will remain at this level for the rest of 2010 and half of 2011. 
- The Government purchased toxic assets such as mortgage backed securities - some of which are now maturing. There is scope for the Government to once again become active in the market if the need arises
- The Government offered emergency funding to troubled banks - They've actually realized significant profits on the majority of these investments(AIG is one exception) and the money can now be reallocated into additional liquidity measures. 
- Other stimulus measures to support housing etc (via tax cuts/concessions). 

As it stands, interest rates remain low, the Government still holds mortgage backed securities however the underlying housing market seems to have bottomed, they have largely exited holdings in banks as profitability has rebounded and they've made moves to wind back stimulus programs such as tax cuts in the housing market. 

Given these circumstances, I think its sensible that they remain active in the bond market and if we look at past recessions, we see a trend by US officials of over stimulating rather than under stimulating. This is a positive for the stock market and should be supportive. 

On the market last night the DOW JONES lost -54.50 points or -0.51% to 10644. The FTSE 100 lost -34.11 points or -0.63% to 5376. Locally, SPI Futures were matching 4 points higher this morning suggesting a flat to positive start. 

We've been speaking about the move into risk assets over the past month or so and last nights trading was interesting on this front. The session opened down and there was a sharp move back into defensive plays. The USD was bought into aggressively and the EURO was dumped while the equity market traded sharply lower. 

It them seemed that traders turned on a dime and bought back into risk. It was a similar case on our market yesterday when we were optimistic in the morning then the market was sold down in the afternoon on the back some weakness in Asia. It really does highlight how fickle the market is at the moment but I still maintain that risk assets that have exposure in Asia is where we want to be. 

Just across the ticker was Full year results from Commonwealth Bank (CBA). On face value, the result looks positive. Full year profit of $6.1 billion (against market expectations of 6 billion), and Dividend Per Share of $1.70 (against market expectations of $1.69). Tier one capital also seemed strong. The outlook statement was a little concerning though. 

I constantly get asked whether the current move in the market has legs or we're setting up for another disappointing move to the downside. A tough question and one that no one can answer for sure but here's some of the reasons why I think we're likely to see this market trade higher over the medium term.  

1. US economic conditions are improving - I know its tough going and there are whispers coming from Washington that more stimulus is in the pipeline but we are seeing an improving jobs situation with a lift in private sector employment (particularly Manufacturing).  I think this trend will start to build momentum over the coming months and this will provide further support to the rally. 

2. Corporate profitability is also on the mend - The recent US reporting season was positive and we saw the vast majority of companies beat earnings expectations. Yes, there were some concerns around revenue however the fact that earnings improved showed the benefits of aggressive cost reduction strategies. I particularly liked to results from the transport stocks which shows goods are moving around the US and Tech companies that showed IT spend was improving. 

3. Emergency Fiscal Policy settings - In both the US and UK interest rates are at emergency settings. 0-0.25% in the States and 0.5% in the UK. Capital is cheap so institutions can borrow money and invest in higher yielding assets such as equities and bonds. Why not borrow at 1.5% and invest in Treasuries that are yielding 3% or equities with a yield of 4 - 5%? The US Fed have indicated that interest rates will be kept on hold for an extended period of time and I'd argue that they need to given they're running a record Govt Debt which needs servicing. 

4. Strong (& sustainable) growth in emerging markets - There was a lot of concern that China was going to stifle growth. This has so far proved incorrect and we've seen a measured approach by Chinese officials to gradually manage its expansion.  If we look across the emerging markets space, with Asia being central to this theme we see India growing at 9.4%, China at 10.5% & Other Asia at 6.4%. In Latin America Brazil has GDP growth of 7.1%. If we compare this to the US at 3.3% and the Eurozone at 1% and ask ourselves 'what economies would we like our money exposed to'  and the answer to me is pretty clear. 

5. This is why we're conscious of whats happening in the US and Eurozone as they have such as a significant bearing on the global markets but when we invest, we focus on stocks that are exposed to this theme of emerging markets growth. It's a theme that has caught on over the last month of so with a clear move into risk orientated assets such as commodities and commodity backed currencies like the Aussie Dollar. 

6. To back this theme we created an Emerging Growth Model Portfolio on the 1st July 2010. The portfolio invests in ASX listed securities that are leveraged to emerging markets growth. CLICK HERE to view the portfolio & please ensure you have read and understood the DISCLAIMER  

On the market last night, the DOW JONES added +45.19 points or +0.42% to close at 10696. The FTSE 100 added +78 points or +1.47% to 5410. Locally, SPI FUTURES are matching 4 points higher. 

The US market dropped sharply in early trade after key employment data came in below expectations and last months figure got revised lower. According to the Bureau of Labour Statistics the US lost 131,000 jobs in July against market expectations for a loss of about 60,000. It's important to note that this figure is skewed due to the drop in temporary employment as the US census winds down.  (Census cut 143,000 temporary workers and still has 200,000 to go).  

The main figure to look at is the Private Sector Employment figure which showed a rise of 71,000 jobs. Interestingly, it was manufacturing that offered most support adding 36,000 jobs - well ahead of market expectations. We've highlighted to importance of manufacturing for the recovery in the states and this is an encouraging piece of data for the sector. 

The unemployment rate remained steady at 9.5% - better than the 9.6% expected by the market. 

The Market's Reaction...! 

Aggressive selling was the first reaction by the market with the DOW JONES sold off 159 points to hit the intra session low at 11.00am. When sanity returned  investors began to look at the positive aspects to the figure and pushed the market sharply higher (closed down 21 points). Jobs are being created in the private sector and this is being led by a resurgence in manufacturing. (Last week we had positive data on the services sector - the biggest sector in the US). The unemployment rate stayed steady and the trend in the data is improving as shown in the chart below. (The sharp pullback in June was courtesy of the Census).  



It was an obvious over reaction by the market and i'm very encouraged by the strong buying into weakness that occurred on Friday. We've also seen this trend occurring over the last few weeks where the market has consistently finished well from the session lows. 

We spoke about Gold on Thursday suggesting a bullish technical pattern and this has now been confirmed with a sharp move higher on Friday. Crude Oil & other commodities were sold off due to some market concerns around employment  and this may put pressure on our local miners today. 

I'm still an firm believer that risker assets that are leveraged to growth in emerging markets will offer the greatest upside potential over the medium term. Any weakness in this area would present an attractive buying opportunity. 

On the market, the DOW JONES eventually finished down -21 points or -0.20% to 10653. The FTSE 100  lost -33 points or 0.62% to 5332. Locally SPI FUTURES are matching down -30 points 

A night of consolidation in both the UK and US markets overnight after the strong rally on Mondays session. It was encouraging to see that the Material stocks - which led the rally the previous session finished flat (i.e no selling pressure) even with some slightly disappointing data on factory orders, pending home sales and consumer spending. We expect risk assets to stay in focus over the coming months which could provide us a real opportunity - for the medium term at least.

The biggest threat to this theme is employment data from the States (non farm payrolls due Friday). Employment is critical to give domestic consumption a boost. Domestic Consumption accounts for 70% of US GDP compared to 55% in Australia and just 35% in China. This highlights the importance of getting the US consumer spending again and it all stems from growing employment. We've started to see an improving trend with unemployment steady and over the next few months we do expect this will start to improve (i.e employment growth). I spoke yesterday (Sky Business) about the sustainability of this move into risk assets and I do think it has legs - A lot longer legs if US employment continues to improve. 

Overnight, the DOW JONES lost -38 points or -0.36% to 10636. The FTSE 100 lost -0.63 of a point or -0.01% to 5396. Locally, the SPI FUTURES were relatively flat down just -4 points. 

If this theme into risk assets is set to continue, and we believe it will, another way to play it is through the mining services companies such as Worley Parsons (WOR) or peripheral exposures such as West Australian News (WAN) - WAN reports tomorrow so hold fire until them. These stocks have lagged the aggressive move into the miners and could offer a cheaper entry into the theme. 

03/08/10   - 8.37am   -  by James Gerrish 

The market finished flat in the US on Friday and given we've got a bank holiday here today, trading is likely to be thin - probably best to head to the snow looking at the large dump they got last night! 

It was interesting to see that Manufacturing data out of China was the weakest in 17 months confirming a slow down was occurring. The Chinese Government has taken steps to dampen the over exuberant housing market, increased the capital requirements for banks (to reduce liquidity) and have clamped down on energy intensive factories all in a quest to pull growth back to manageable levels. 

Although it seems to be working (if you look at PMI data), the Chinese Equity Market has bounced which suggests that domestically, investors are becoming more confident that growth will remain strong. 

On the Fridays session, the DOW JONES lost  -1 points or -0.01% to 10465. In the UK the FTSE 100 fell  -55 points or -1.05% to 5258. Locally, SPI FUTURES were indicating a rise of 7 points when the market opens. 

Over the last couple of weeks we've been discussing the move out of defensive sectors into riskier asset classes. This move has been obvious with the Volatility Index down, the Commodity Index sharply higher on the back of buying in Base Metals such as Copper. In the currency markets, we've seen a pullback in the US Dollar  and the Japanese Yen  while buying has intensified in the Aussie Dollar and the Euro.

This points to a distinct move into more growth orientated asset classes and you'd assume this is on the back of US company results. It shows that investors are upbeat and are willing to rotate back into some risk. Even on the couple of down days last week, it was the defensive sectors such as healthcare that weighed the market. 

Looking more locally, our market is continuing to under perform both the US and UK. The US is now marginally higher for the year while the S&P/ASX 200 is down more than 7%. This shows that measures to reduce growth such as interest rate hikes are weighing on investors and given the downside surprise in CPI data last week, I would argue that we're likely to see inaction from the RBA - potentially for the rest of the year. 

Another interesting observation is the under performance of the S&P/ASX 200 against the Aussie Dollar. There is generally a high degree of correlation which has recently faltered.

I'm suggesting more upside in the market leading into reporting. 

We've been speaking about the demand for risk assets over the last few weeks as investors look to reduce defensive exposure in favor of growth orientated assets. To me this is a clear theme thats playing out and it was once again obvious overnight. The Euro was higher, the US Dollar was lower and the commodity index broke out from resistance 


We also saw the Aussie Dollar bounce from support. 

On the Market the DOW JONES lost  -30.72 points or -0.29% to close at 10467. It was a roller coaster ride with buying early on the back of a better than expected results from Exxon and some initial reports that painted a favorable picture on employment. This gain was stripped away when Colgate missed the mark as did a number of tech stocks. We did see the market rise +80 points from the low towards the end of trade which was another positive sign of buying into weakness or some may call it consolidation of recent gains.  

The FTSE 100 lost -5 points or -0.11% to 5313. Locally, SPI Futures were matching down 17 points. 

Some profit taking last night in the US and Europe after data on Durable Goods Orders came in below expectations. The US had risen six straight sessions and in this type of environment some marginal weakness was not surprising. 

Volume remained light across the board with all sectors finishing in the red. Its interesting to see that Healthcare was the weakest link down 1.1% on the session and if we look at the sectors performance over the last week, its been the biggest laggard showing a move away from the defensive space. 

Last night the DOW JONES lost -39 points or -0.38% to close at 10497. Over in the UK the FTSE 100 lost -46 points or -0.86% to close at 5319.  Right on its recent breakout level and close to the session lows. 

Locally, SPI FUTURES are matching 18 points lower this morning. 

Its was interesting last night to see that commodities were actually higher on the session with Copper leading the rise. There was some upbeat comments out of China about its rate of growth and this filtered through into the commodity producers. BHP was higher on the session and looks likely to test that $40.50 level at some stage today (hasn't been this high since April). 

I'm starting to get a little concerned about the technical structures that are playing out in the price of Gold. Lower highs, a clear break of support at $1163 and our belief that funds are starting to flow from safe haven assets into risker exposures. 



Options expiry today so volumes will be high. 

The US market tried to push higher overnight and was buoyed early by a stronger than expected result from UBS in London, however volume was very light and the market really just drifted into the close. 

Oil came under pressure on the session based on lack luster consumer confidence data which dropped to its lowest level in 5 months - the print was only marginally below forecasts so thats why the market stayed resilient, however Oil was off by more than $1. 

Looking at Crude on the chart its obvious that some degree of technical selling was there given Crude is trading at the top of its trading range. 

This is actually a similar pattern to BHP on the local market. We see the stock trade at the upper limit of its trading range and for mine, it does look ripe for some near term weakness. In saying this, I'm going to hedge my comments by highlighting that a break to the upside from a consolidation zone is bullish and an upside move can be quite aggressive - however I do believe its the lower probability scenario. 



Overnight, the DOW JONES added +12 points or +0.12% to 10537. The FTSE 100 added +14 points or +0.27% to 5365. Interestingly, both indices finished well off the session highs - which is a sign of weakness. Locally, SPI FUTURES rose +2 points indicating a flat open this morning. 

The local market will be firmly focussed on the Consumer Price Index (CPI) due out at 11.30am this morning. The CPI print will go along way to determining whether the RBA will raise interest rates next month. Any print above 1% for the headline rate will increase the chance for a rise. Bear in mind there are some one off impacts in the number (such as the new 25% excise on Tobacco) so the main number will be the underlying figure (which is minus these one off events). Underlying above 0.7% would increase the chance of a rate rise.

27/7/10   - 8.13am   -  by James Gerrish 

Another positive night in overseas markets with momentum towards risk assets building. This most obvious place to look at this theme is within the Aussie Dollar which broke through resistance to trade above 90c. For mine, this now sets up a move back to 93c on the back of continuing appetite for risk (my trip to the states in September is likely to get a whole lot better - especially when we think Aussie reporting season is going to be strong and we'll get some political stability by the end of August). 

Overnight, the DOW JONES added +100 points or +0.97% to 10525. The FTSE 100 rose +38 or +0.72% to 5351.Locally, SPI FUTURES are suggesting that we'll open 26 points higher. 

In the US Fed Ex reported a strong result which supports the positive number that were released from UPS last week. Both companies ship goods around the states and internationally and these results show that US citizens are still shipping a lot of goods. 

We also saw better than expected New Home sales overnight which recovered from a pretty disappointing result last month. New Home sales are important because they have a flow on effect to other consumer related goods - furniture, appliances etc. 

We continue to have a bullish bias in the market but are certainly cautious of becoming overly optimistic. Looking at the charts, the technical structures are supporting the concept of higher prices, particularly the disparity between the Aussie Dollar the Australian Market. Generally we see the S&P/ASX 200 with a higher degree of correlation however the moment, the Aussie dollar is out pacing the index. SEE CHART. Interestingly, both the FTSE 100 and DOW Jones are also outperforming our index SEE CHART so there could be scope for a stronger rally in local stocks to catch up to overseas counterparts.