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Active Investor e-Newsletter

February 7, 2012
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Gary’s Comments

In the last Active Investor issue that I wrote on 1 December 2011 (click here) I noted that some contrarian indicators were at levels where we could potentially see a change in trend in equities indices to UP. Also, at that time a number of international equity indices were starting to show some early signs of moving higher. The DJIA, S&P500 and FTSE-100 had all signalled a medium term ‘entry’ into equities, according to our SPA3 mechanical system.

Since then all equities indices around the world have signalled medium term ‘entries’ and this equities rally is fast gathering strength. Even the lagging Asian equity indices are now in what I would term medium term up trends. However, a word of caution, the Shanghai All Share Index and Nikkei 225 have reached resistance zones around 2340 and 9000, respectively. They’ll have to break through these. However, the Hang Seng has burst through its last couple of resistance levels but is now at a relatively higher and stronger resistance zone between 21000 and 21600.

Sadly, the All Ords has not yet quite reached it first major resistance zone which is around the 4500 level. Although, to give it some credit, it did manage to reach a new 2 month high yesterday!

In contrast, the Nasdaq has reached a new 10 year high, the DJIA a new 4 year high close and the JSE ALSH in South Africa a new ALL TIME high.

A Christmas rally was expected but markets don’t always act on cue. Some commentators are saying that we are just experiencing a belated Christmas rally but somehow I think that this is a bit of a stronger rally than a mere belated Christmas rally.

Having painted a rosier picture than I have for nearly a couple of years I should caution that when stepping through around 20 different international equity indices all of them are at or slightly above a resistance level. This tells me equities markets have run quite hard and that a retracement and / or a consolidation of sorts is due in the short term. The depth and duration of this retracement will provide some vital clues as to the equities markets’ next move.

In summary, investors should be taking note of this rally. As I have repeatedly said in my writings, economies and markets do NOT move in sync. Markets lead economies and economic news by many months, even as much as a year in extreme cases.

Overseas Markets Report
Index Close % Change Intelledgence
Risk Status
Short Term Trend Long Term Trend
Dow Jones 12845.13 1.51% Neutral – HIGH Down Up
SP 500 1344.33 2.39% HIGH Down Up
Nasdaq 2901.99 3.20% HIGH Down Up
FT 100 5892.2 3.90% HIGH Down Down
Dax 6764.83 4.97% HIGH Down Down
CAC 40 3405.27 4.28% HIGH Up Down
Nikkei 8929.2 1.55% HIGH Up Down
Hang Seng 20709.94 2.73% HIGH Down Down
SSE-All 2331.14 2.02% HIGH Down Down
 

There has been a clear break out on the CCI, the Continuous Commodities Index, and our SPA3 mechanical system has provided a signal to ‘enter’ the CCI.

Gold has run quite strongly since late December and has reached quite a strong resistance zone between 1770 and 1800.  It may have already completed a pull back to the 1710 level or it may still pull back further to the 1670 – 1680 zone. If it rises immediately from these levels and breaks through 1800 take that as a strong bullish signal.

Copper has reached a resistance zone at 390 – 400. It needs to break above this zone to show further strength but a retracement back to 370 or 355 might be on the cards first.

Brent Crude has just had a clear break out of its channel and could test the $123 – $125 level again.

Tin, Zinc, Lead, Nickel, Aluminium, Palladium, Platinum and  Iron Ore are all showing signs of price recovery. Uranium and Thermal Coal are  not showing similar signs.

Commodities
Index Close % Change Intelledgence Risk Status Short Term Trend Long Term Trend
Brent Oil 115.93 4.68% LOW Up Up
Gold 1724.9 -0.35% LOW – Neutral Down Up
Copper 386.45 0.99% HIGH Down Down
Lead 2147 -6.16% HIGH Down Down
FX-$-EUR 1.3123 -0.08% HIGH Down Down
US $ Index 79.069 -0.12% LOW Up Up
CRB Index 314.2 0.09% HIGH Down Down
Silver 3375 0.67% HIGH Down Down
Zinc 2088 -4.15% HIGH Down Down
FX-$-AUD 1.0723 1.22% HIGH Down Down
Platinum 1629.8 0.84% HIGH Down Down
 

The S&P500 is slightly lagging the DJIA and Nasdaq Composite, as is the NYSE Composite, telling us that the broader market industrials are lagging the large caps and tech stocks. However, this trend is starting to resemble the 24% late Aug 2010 to mid Feb 2011 rally in the S&P500 (which was only a 10% rally in the All Ords over the same period).

The SMA 40 has crossed above the SMA 200. From research this crossing has a negative edge because of the delay and the whipsaws that occur with long period moving averages. However, it is significant in that large moves are signalled by this crossing and, being such a widely known indicator, large equities managed funds do typically react to it because if they don’t and a trend does eventuate it can be professionally embarrassing.

The NYSE Cumulative New High New Low breadth indicator is rising fairly strongly showing similar signs to what it did in the early to mid 2009 rally after the GFC. This means that there are many more stocks in the NYSE Composite Index making new highs than are making new lows. Another sign that equities are back on the agenda.

If the S&P500 continues to rise from here without a breather at these levels then expect some decent resistance at the 1370 – 1380 level where we could get a retracement back to 1330 to 1340 level.

If we get a retracement right away in the next week or so then there should be support as low as the 1280 level and this trend will still be up. If support is found higher than 1280 then read that has an indication of strength.

A fall to around the 1240 level would start setting off some alarm bells.

Local Market Report
Index Close % Change Intelledgence Risk Status Short Term Trend Long Term Trend
All-Ords 4364.6 0.70% HIGH Down Down
Information Technology 499.1 2.27% HIGH Down Up
Consumer Discretionary 1239.9 1.50% HIGH Down Up
Materials 11833.18 1.64% HIGH Down Down
Energy 13791.1 -0.95% HIGH Down Up
Property Trusts 828.5 0.84% LOW Up Up
Financials 4054.6 0.23% HIGH Down Up
Consumer Staples 7241.1 -1.30% HIGH Down Up
Health Care 7756.1 -1.39% HIGH Down Up
Telecommunications 1154.9 2.16% LOW Up Up
Industrials 3608.5 1.53% Neutral – HIGH Down Up
Utilities 4591.7 -1.54% LOW – Neutral Down Up
 

The All Ords continues to lag most of the equity indices around the world. This is obvious and probably boring news. See this comment for some discussion on possible reasons (click here). If it is any consolation so is the TSE (Toronto SE) index lagging although it is doing a little better than the All Ords.

However, there are pockets of stocks that are doing well on the ASX. Using Comparative Relative Strength analysis will highlight which stocks are moving and which are lagging. In fact, it is during market periods such as this that it is easier to find the price leaders.

Doing some basic sector analysis shows that the following sectors are looking the strongest: Industrials, Telecommunications, Utilities and Property Trusts (note that I publicly changed my many year stance on Telstra around mid November 2011 to being bullish on the stock – its next target is around $3.75).

The weakest sectors are Consumer Staples, Health, Information Technology and Consumer Discretionary.

The All Ords really does need to test the 4500 level again and break into the 4500 – 5000 range.  It has quite a bit of catch up to play. Any retracement needs to find support at or above the 4100 – 4200 zone.

Portfolio Summary
Portfolio 23/01/2012 30/01/2012 6/02/2012 Weekly Move % Top Mover % Gain Transactions
Intelledgence $409,750.95 $408,642.42 $414,144.82 1.35% BPT 5.47% 0
SPA3 Portfolio $396,586.10 $402,152.88 $408,912.68 1.68% WDR 18.42% 0
SPA3 Hedge $442,464.84 $446,913.21 $452,915.70 1.34% BRU 11.19% 0
SPA3CFD $45,861.97 $48,708.19 $50,151.99 2.96% MOC 5.90% 0
 

Share Wealth Systems provides more detail on all of the above items at our eUGMS. The eUGMs are monthly multimedia presentations available to Share Wealth Systems members only.

The figures used in this Active Investor are based on data prices as of: 06/02/2012

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12 people like this post.

Comments

  • Boris Feldman says:

    How to explain that copper is reaching top resistance level and materials trend Down/Down?

    • Gary Stone says:

      Response to Comment by Boris:

      Copper is not reaching a ‘top’ resistance level, just a resistance zone at 390 – 400. This is well off it’s recent high of around 460.

      The Materials sector is starting to show some early positive signs by outperforming the ALL ORDS since early January after underperforming since late July 2011.

      Regards
      Gary

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