Dow up 9 points, risk appetite grows on merger and acquisition activity
August 19th, 2010 by Katy Loi
Closing Data
| Current | Change | % | |
|---|---|---|---|
| Dow Jones | 10,415.54 | 9.69 | 0.1% |
| NASDAQ | 2,215.70 | 6.26 | 0.3% |
| S P 500 | 1,094.16 | 1.62 | 0.1% |
| FTSE 100 | 5,302.87 | -47.68 | -0.9% |
| Nikkei 225 | 9,240.54 | 78.86 | 0.9% |
| ASX 200 | 4,474.90 | -2.1 | -0.1% |
| COMEX Gold - Dec 09 | 1231.4 | 3.1 | 0.3% |
| COMEX Silver - Sep 09 | 18.36 | -0.235 | -1.3% |
| COMEX Copper - Sep 09 | 334.95 | 1.1 | 0.3% |
| WTI Spot | 75.42 | -0.35 | -0.5% |
| AUD-USD | 0.8987 | 0.0002 | 0.0% |
| Aluminium | 2,146.00 | 11 | 0.5% |
| Copper | 7,353.50 | 38 | 0.5% |
| Lead | 2,119.00 | 6 | 0.3% |
| Nickel | 21,875.00 | 25 | 0.1% |
| Tin | 21,450.00 | -300 | -1.4% |
| Zinc | 2,105.50 | 4.5 | 0.2% |
The Dow closed up 9 points overnight with confidence building ahead of the next merger and acquisition cycle. Bond prices fell showing growing investor appetite for equities. Merger and acquisition activity is speculated to be seen in steel, coal and fertilizer industries. Weighing down the market was a fall in oil prices as U.S. government data showed total petroleum stocks surged to the highest level in 20 years. The contango for oil is still widening which means the oil futures prices are trading higher than the spot price, an indication that there is high supply of oil and high demand for storage. Technically oil has found support at the $75.50 to 76.00 level. Potash Corp. rose a further 3.3 percent, on BHPs 40 billion takeover offer of $130 a share which was rejected. There is speculation that the offer may climb to as high as $165 a share.
Gold prices closed modestly higher Wednesday. From a technical perspective, the gold price had a bullish outside day, up on the daily chart whereby the high was higher and the low was lower than the previous session's trading range, with a higher close. The near-term upside technical objective is to produce a close above $1,250.00. The U.S. dollar index traded slightly lower, further supporting the price of gold. However, crude oil prices have been trending lower for two weeks, which is an underlying bearish factor for gold. The main report out tonight in the US is the weekly U.S. jobless claims data.
Today, our market looks to open fairly flat as the index is holding above the medium term (60 day) moving average at 4443. What could move the market are earnings reports coming out for ASX, QBE, Wesfarmers and Brambles.
BHP’s takeover bid for Potash could spark further merger and acquisition activity, particularly in the materials sector. Should further activity pick up, hedge funds may start to cover their short positions in resource stocks, to be short the acquiring company and long the takeover target. Merger and acquisition activity is a strong sign that growth and confidence in the market is increasing. Whilst funding costs are relatively low and cash levels of Corporates are high, it wouldn’t be surprising to see the start of the M&A cycle.
The next target on the index over the medium term is 4504 which is the 20 day moving average. A flag formation seems to be forming on a daily chart of the index which, if it can break the last high of 4494 on good volume, may see the next extension up to 4635 over the next month.
Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.
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