Profit taking hits market

June 23rd, 2009  by Neil Gynther

Closing Data

	current	change	%
Dow Jones	8339.01	-200.72	-2.4%
NASDAQ	1766.19	-61.28	-3.4%
S P 500	893.04	-28.19	-3.1%
FTSE 100	4234.05	-111.88	-2.6%
Nikkei 225	9826.27	40.01	0.4%
SPI Futures	3779	16.4	-2.8%
All Ords	3,911.00	-0.5	0.4%
Oil	67.09	-2.51	-3.6%
Gold	921	-15.2	-1.6%
Silver	13.705	-0.495	-3.5%
Aluminium	1585	-57	-3.5%
Copper	4821	-199	-4.0%
Lead	1600	-100	-5.9%
Nickel	14700	-500	-3.3%
Tin	14615	-385	-2.6%
Zinc	1490.5	-70.5	-4.5%

US stocks were down substantially on Monday, ending at three-week lows, as the World Bank's weak outlook on global growth sent Wall Street tumbling to its worst day in two months. European stocks fell the most in two months, hitting a five-week closing low, with weaker crude oil and metals prices pressuring commodity stocks. Oil and gold prices slumped and the US dollar was mixed. Treasury prices rallied as investors sought safety, sending the corresponding yields lower. No economic reports were due on Monday, with readings on housing, consumer spending and the labour market due later in the week.

The World Bank cut its 2009 forecast, predicting that global growth will shrink by 2.9% versus its earlier forecast of a 1.7% contraction. Global trade is expected to plummet 9.7% this year, it said. Developing countries have been hit especially hard, with the exception of booming China and India. The forecast sent European markets tumbling as well, while Asian markets  ended higher.
Market breadth was sharply negative. On the NYSE, losers beat winners by more than seven to one and on the NASDAQ, decliners topped advancers by more than five to one. The VIX jumped 11.4% to 31.2, past the key 30 level for the market's preferred fear gauge; a reading of 30 for the VIX marks an expected period of high volatility on Wall Street. Volatility gauges for the UK, Germany and France closed at least 9% higher; the Dutch AEX Volatility Index increased 15% in Amsterdam.
Commodity stocks were lower at the open as were most financials and some of the tech leaders. Iron and steel stocks dropped 4% and aluminium company Alcoa (-8.91%) led losers on the Dow industrials. Freeport-McMoRan, the world's largest publicly traded copper producer, plunged 11 % for the biggest decline since March 2.

Commodities

Declining energy prices sent the Reuters/Jefferies CRB Index of 19 raw materials lower after the World Bank's comments. The index dropped 2.7 % to 246.07, the lowest level since May 26. Crude oil fell more than $2 a barrel and gasoline tumbled.
Gold prices slid to a five-week low after the World Bank forecast a deeper contraction, easing fears of inflation; silver also dropped. Copper in London and New York slumped to the lowest in more than two weeks.

The performances of RIO and BHP on overseas exchanges suggest $1 to $2 falls in their prices this morning.

OUTLOOK

Although the World Bank suggests that China and India are going along quite nicely, the prices for commodities dropped sharply after the report was released. There was also a lot of talk amongst Wall Street commentators that many traders were taking profits, especially in the Financials, from a market that has risen more than 35% in the last three months.

Our market will be down sharply this morning (SPI currently off 89 points ) and this fall will be across all stocks. However I would see substantial falls in our resource stocks as a buying opportunity (remember China and India ). I would be wary of jumping into Financials until the correction works its way out. It could be some days before we see support for the Financials. Longer term investors yet to re-enter the stockmarket will be spoilt for choice over the coming days. Volatility is up and will continue to offer good premiums for the Covered Call strategy. Contact your Freeman Fox broker for opportunities.

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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