A week of consolidation

September 10th, 2010  by Patrick Pecci

Closing Data

	Current	Change	%
Dow Jones	10,415.24	28.23	0.3%
NASDAQ	2,236.20	27.31	1.2%
S P 500	1,104.18	5.31	0.5%
FTSE 100	5,494.16	64.42	1.2%
Nikkei 225	9,098.39	73.79	0.8%
ASX 200	4,582.20	45	1.0%
COMEX Gold - Dec 09	1250.9	-6.6	-0.5%
COMEX Silver - Sep 09	19.855	-0.154	-0.8%
COMEX Copper - Sep 09	344.35	-5.7	-1.6%
WTI Spot	74.25	-0.42	-0.6%
AUD-USD	0.9228	0.0047	0.5%
Aluminium	2,082.50	-38	-1.8%
Copper	7,532.00	-88	-1.2%
Lead	2,162.00	11	0.5%
Nickel	22,580.00	130	0.6%
Tin	21,750.00	770	3.7%
Zinc	2,125.00	-45	-2.1%

Dear Investors and Traders,

Last night’s larger than expected fall in US jobless claims eased concerns that the economic recovery out of the US is slowing. As a result, we saw treasuries fall and gold dive over US$11, its biggest fall in 3 weeks. Stocks climbed, with the Dow Jones @ 10415 up 28 points and the S&P500 outperforming up 5.3 points or half a percent to close at 1104. US equities finished the sessions off their highs. Initially led by the banks and financials, rumours of Deutsche Bank, Germany’s largest lender, feeling out the market for interest in issuing up to $9B Euros saw the sector drag the market from its highs.

The Australian dollar appreciated against all 16 of its major crosses, closing the overnight session @ 92.28USc its highest level since May. Technically it has reached major resistance so it will be interesting to see what price action will follow over the coming sessions.

Locally, we have seen a consolidation week so far, with the XJO closing @ 4582 yesterday, trading in a tight 50 point range all week. Yesterday was quite eventful, with 2 Top 50 stocks, AXA and STO, taking heavy losses, however not enough to dampen the positive market sentiment, with the XJO still managing to close up 45 points or 1% higher.

NAB, closing up 3.7%,  has run into ACCC hurdles for its bid over AXA, seeing the latter drop as low as 10.5% early in the session, recovering throughout the day to close at $5.08, still down 6.5% from the previous close. This may offer investors a great trading opportunity since AXA initially attracted AMP as a bidder back in December of 2009 and given the regulatory hurdles faced by NAB, AMP will likely return to the scene. Speak with your Freeman Fox broker around potential strategies involving AXA. Given all the recent action value could well be appearing with some great premiums on offer.

On a different note, STO yesterday announced a sale of a 15% stake in its Gladstone LNG (GLNG) project for $650M to French major Total. The share price initially found support, however as the day progressed, heavy selling hit the boards and the stock fell close to a dollar to close @ $12.79 down 7% on the day. Market felt that the $650M price tag was about 13.5% cheaper than the stake it sold the other major JV partner/customer, Malaysian Petronas, 2 years ago, when STO sold 40% of the venture for $2B, valuing the entire project @ $5B Vs $4.33B value based on the Total deal. CEO David Knox told Dow Jones news wires that the sale did not indicate difficulty in finding buyers, given that Petronas and Total are both JV partners and customers of the future LNG produced, adding also that STO has still achieved good market prices for the LNG sold and a reasonable price for the sale of its stake given market conditions. Let’s not forget that the STO/Petronas deal was struck a couple of years ago when market sentiment for the energy sector was substantially more buoyant. This pullback has filled a huge gap in the charts and may present itself as a great entry into Australia’s second largest pure oil and gas play. Keep a close eye on price action and look for an entry into continued weakness back to 1220/1250

We still remain bullish the market and hope to see a retest of the year highs by Christmas, with a good possibility of fresh highs and continuation to 5200/5400 into the first and second quarter of 2011.

Despite the outlook we have seen an increase in the number of potential bearish market views. Such commentators including Zimmerman, Roubini, Dent and the perennial bear Prechter (since the 1990’s) have all been active of late.

What could trigger a correction when we are finally starting to see US macro-economic numbers fall in step with strong corporate earnings and balance sheets? Will it be a major war? Government collapse (European fears re-emerging...earlier note RE Deutsche Bank capital raising...and Germany is Europe’s strongest economy)? Huge meteor hits Earth? Or just fear mongering???

Well making money in the markets is important, however capital preservation and risk management is just as important, if not more. As such, we still retain our bullish stance for the future, however if things start looking a bit shaky, please do not hesitate to take appropriate action to hedge your portfolio and mitigate market risks. There are plenty of instruments available to do just that if you don’t want to sell down your holdings, so feel free to ask your experienced advisor what steps can be taken to preserve your capital. The only certainty is that price will lead the way.

Happy Friday, happy trading and have a great weekend.

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

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