The bulls continue to control the market as we start February, and trading volumes are steadily improving. February is a busy time for Aussie investors as the reporting season gets underway and many stocks will be going ex-dividend in the next six weeks. Over a dozen stocks hand down their interim results on Tuesday.

US investors had their best January since 1997, as the Dow Jones Industrials rose 3.4% for the month, the S&P 500 was up 4%, while the Nasdaq outperformed up 8%. The earnings season has been exceeding expectations and the US financials have held on to their record gains. Manufacturing figures are improving globally and a reading on US manufacturing came in at 54.1 for January (up from 53.1). There is a lot of hype about Facebook’s announcement to IPO to the tune of $5 billion and Apple has been confirmed as the largest corporation on the boards (outsizing Exxon Mobile Corporation).

The Federal Reserve Chairman Ben Bernanke addressed US lawmakers overnight, describing the pace of the US economic recovery as “frustratingly slow” and warned of the importance of addressing the US’s fiscal challenges, highlighting that eurozone sovereign-debt crisis is an example of out-of-control fiscal policies. Bernanke fell short of reaffirming a QE3 package, however. Traders will be focusing now on the US Non-Farm Payroll monthly employment figures out tonight.

European markets are continuing to melt-up, with the European Stoxx 600 index holding at 6-month highs. Globally investor sentiment has been boosted by successful eurozone bond auctions with borrowing costs continuing to pull back, despite the Fitch ratings agency downgrading Italy, Spain, Belgium, Slovenia and Cyprus, and cutting the outlook for Ireland. Sentiment has been buoyed by the news of a successful “fiscal compact”, as all but two of the European Union countries have agreed to sign a treaty designed to stop overspending on the eurozone, and put an end to the bloc’s disastrous debt crisis, while also pledging to stimulate growth across the region.

European shares have continued higher this week after data showed that the ISM manufacturing index climbed to 54.1% in January. Additionally manufacturing data from Germany, the U.K. and the eurozone all boosted sentiment as the German PMI rose to 51.0 in January (up from 48.4), while eurozone PMI rose to 48.8 in January (above estimates of 48.7), while London the UK PMI hit an eight-month high of 52.1 in January (up from 49.7).

The eurozone debt crisis continues to simmer under the surface though, as there is concern that Portugal may be the next in line for a Greek-style debt bailout. The European leaders and Greek bondholders are still in negotiations over the Greek bailout, where Greece has to write down the country’s debt by EUR100 billion. A resolution is essential, as Greece must repay EUR14.5 billion of maturing debt in March to avoid a default.

Asian markets returned from their Lunar New Year holidays and traders played some catch-up. The key data point for the week was the Chinese manufacturing activity figures coming in better-than-expected, but this did heighten concerns that the government may not need to immediately ease its monetary policy. The Chinese official Purchasing Managers Index (PMI) was reported at 50.5 in January, up from 50.3 in December (above expectations of a drop to 49.5). 50 is the level that delineates expansion and contraction. The Chinese market is approaching 2-month highs.

The Aussie market has once again found medium-term support around the 4200 level and has finished higher four of the past five weeks. The market appears to be setting up for a retest of the multi-month highs around 4350, as the upcoming reporting season may well be a trigger for this move. This week we found support around the 4200 level and we are now trading above the 13-day moving average, which sits around 4230. Many of the S&P/ASX sectors are looking to test their 150-day moving averages near term, which could give some pause as these levels have held prices in check for the past six months. The Materials, Industrials and Telecoms sectors are in uptrends, while the Financials and Energy sectors look set be testing overhead resistance. Defensive sectors such as Utilities and Consumer Staples look to be losing favour.

The next dividend season begins in February, so you can look to boost your yields through options strategies. The MDS Financial Advisory Services team can help with these trades. Call me on 1300 610 024 for further information. Investors should also be looking to utilise options strategies to protect their positions, as options are a relatively cheap form of insurance, given the falling volatility of late.

Remain attuned to the news from overseas, particularly from the eurozone, Greece and China in relation to easing policies, and the US with their earnings season. Monitor the performance of the US dollar for a guide to the future direction of commodities and equities prices.

The S&P/ASX 200 index is currently trading at 4255 and is trading above the key pivot level around the 4180. Key levels for the index next week will be 4180 and 4320, with 4230 the key pivot level.

By Michael Hevern
MDS Trading Desk

For regular Buy and Sell recommendations on ASX listed companies register for a free trial of MDS Financial Research.

Trading untested ideas

Poor analysis or research is common among new traders. You may hear a news report about a particular company and decide it would be a great idea to trade the company based on the report. Unfortunately by the time the news gets to you many other people already have the information and have made their trading decisions. There’s a saying in the stock market: ‘buy the rumour, sell the fact’, meaning that when the news is finally released it’s very often too late to enter a trade. Following tips or rumours is a sure sign that you haven’t adequately prepared to enter the market. By doing your own analysis you can determine what works and what doesn’t.

Back test or forward test your trading idea before ever entering a trade. Back testing involves testing your idea on historical data and allows you to test a large number of ideas very quickly. For example, you may scan a lot of charts and identify a particular pattern that appears before significant moves in a share. This is back testing.

Forward testing (often referred to as paper trading) involves testing your idea on current data as it becomes available. To verify that your idea works, look for opportunities as they unfold because your chosen pattern may occur without a strong move following it. This is using forward testing to confirm your idea. Forward testing is more reliable than back testing, but much slower to perform.

In its simplest form you can back test by looking at lots of charts so you can begin to recognise patterns that occur before a strong move unfolds. When I started trading I studied thousands of charts to find out what worked and what didn’t, then narrowed down a few ideas to follow through with forward testing to see if they continued to work. Ensure you complete a thorough analysis before entering a trade, or follow a more experienced trader’s strategy.

Allowing losers to get out of control

Failure to cut losses can quickly result in disaster for any trader because the market can move far more than you expect. This is probably the most common mistake we see new traders make. The trader hopes the trade will reverse direction and move back into profit. Refusing to take the loss, the trader continues to hold the trade while willing it to turn into profit. While this may happen occasionally, when the trade doesn’t turn around it can do severe damage to your trading account. Cut your loss and look to re-enter if another entry signal appears. Ensure you develop the discipline to enter a stop loss into the market every time you enter a trade. This ensures you never get hit with large losses.

Mental stops are stop-loss orders that you place in your head instead of the market. For example, you decide to exit a long trade at $3.10, but when the market approaches $3.10 you convince yourself the market will move higher soon so you don’t take the exit as planned. The loss can now get seriously out of control and you could lose a lot of money. The problem with mental stops is you have to act on them. This can be difficult because when you are required to execute the trade you’re often in a losing position and hoping things will turn out ok. Even if you have been able to develop the discipline to act on your stops, the market sometimes moves very rapidly and you may end up losing more than you expect.

Mental stops may be used by experienced traders, but must never be used by beginners. Until you master the discipline to take exits when they’re signalled, stay well away from mental stops. Focus on good stop placement to avoid getting stopped out.

Overtrading

Another common mistake traders make is overtrading. It’s possible to make very nice annual returns from just a few good trades a year. High frequency trading is not required to make a profit. If your strategy has a sound edge then the more opportunities you have to trade it the better, but don’t confuse trading a lot with trading successfully. A few good trades can make a good year. It’s not necessary to be in and out of trades 20 or 30 times a day to make a profit.

Some of the most valuable time you can spend is identifying the best opportunities. There are millions of trading possibilities. It becomes necessary to make some choices and narrow your selection of what you will trade. To do this it’s necessary to overcome the fear of missing out on an opportunity. Remember the opportunity of a lifetime comes along every week! Many great opportunities will appear, so stop wasting your time and money on half-rate opportunities. Accept nothing less than the best when selecting trades. This
more selective approach can dramatically improve your profitability.

Eliminating mistakes

Eliminate these three fatal mistakes we’ve just discussed and your trading will improve dramatically. However, to eliminate the mistakes, first you must identify when you’re making a mistake. Your trading diary where you record your trades, wins and losses allows you to identify areas where you’re failing to stick to your plan. In particular be honest about the reasons you entered a trade. This honesty may take some time to develop because it’s not nice to admit you took a trade because you wanted to make back the money you lost in the morning. It’s easy to justify that a setup was in place, but tell the truth. You’re only lying to yourself.

Identify why you fail to stick to your plan and what you must change to eliminate the mistake. If the reason you fail to execute the core skills is emotionally based then monitor how you’re feeling when you’re trading and notice when particular emotions appear. Address each bad habit, one at a time, to change your behaviour.

Refining your trading skills takes practice to improve on the areas in which you’re weak, but the rewards are worth the effort. Becoming a better trader requires you to become a better person. This is one of the reasons you can find trading challenging to learn. Fortunately once you’ve changed a few habits, successful trading becomes much easier.

Jeff Cartridge
Education Manager

Yesterday Aussie shares played catchup with their overseas counterparts, but today traders should be looking to protect recent profits, as investors wait for some conclusive news on the Greek debt talks and the US monthly employment figures due out tonight.  We had generally positive leads from the US and European markets overnight.�
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See below for ASX listed companies in the news today.

US Markets

US stock markets eased overnight, as traders digested mixed earnings reports and showed caution ahead of the US Non-Farm payolls report due out tonight.  

The Dow industrials finished down for the seventh time in past 9 sessions.  In the broader markets the S&P 500 ended flat, while the tech-heavy Nasdaq edged higher and continues to outperform, jumping 9.8% this year, trading at six-month highs.  

Federal Reserve Chairman Ben Bernanke addressed US lawmakers overnight, describing the pace of the US economic recovery as “frustratingly slow” and warned of the importance of addressing the US’s fiscal challenges highlighting the eurozone sovereign-debt crisis as an example of out-of-control fiscal policies. Bernanke fell short of reaffirming a QE3 package.  

In corporate news big-pharma sold down after Merck reported 4Q revenue that were below expectations.  A number of retailers were hammered after Abercrombie & Fitch plunged -11%, after the apparel retailer said that fiscal 4Q earnings would fall well short of expectations. Another retailer, Ann, plunged -8.5% after saying its fiscal 4Q results would be below expectations as well. On the flip side, MasterCard rose 6.7% after increased card spending helped the company turn in core earnings ahead of expectations.  

Commodities were generally weak with crude-oil down on falling US demand and increases in supplies and copper retraced, but gold continues its rise on the back of eurozone debt concerns.

The ten company groups that make up the S&P index traded mixed with Materials down -0.5%, Energy up 0.8%, Financials up 0.5%, Industrials up 0.1%, Technology up 0.3%, while Consumer Staples were down -0.1%.

The Dow Jones closed down -0.1 % (or -11 points) at 12,705, the S&P 500 index was up 0.1% (or 1 point) at 1,325, the Nasdaq ended up 0.4% (or 11 points) at 2,860 and the smaller cap Russell 2000 was up 0.4%.

European Markets

European stock markets edged higher overnight, as the European Stoxx 600 index closed 0.2% higher, holding at 6-month highs.  

Traders pushed share prices higher after US data showed productivity was up 0.7% in the fourth quarter of 2011 and initial jobless claims were down 12,000. Sentiment was also helped by successful bond auctions with the Spanish Treasury selling nearly EUR4.6 billion of government debt with borrowing costs declining, while France successfully sold EUR7.96 billion of government debt.  However investors continued to await a conclusion to talks between Greece and its private-sector creditors.

Mining stocks were in focus after Xstrata PLC (up 10%) confirmed it is in merger talks with Glencore International PLC (up 7%), while Vedanta Resources PLC gained 5.8% and Rio Tinto PLC rose 1.8%. Energy stocks weighed on the back of lower crude-oil prices.

In London the FTSE 100 index closed up 0.1% (or 5 points) at 5,796, the German DAX was up 0.6% (or 39 points) at 6,655 while in France the CAC was up 0.3% (or 9 points) at 3,376. Spain was up 0.8% and Italy ended up 0.1%.

Asian Markets

Asian stock markets were broadly higher yesterday, led by commodity and financial stocks after an improvement in manufacturing data buoyed global sentiment.  

Across the region commodity stocks were higher as positive manufacturing data is seen as a positive for global growth.  Financials also pushed markets higher.  It was “risk on” and the Chinese and Hong Kong markets surged 2% for the session. 

In China the SSE Composite was closed up 1.9% at 2,313, while in Hong Kong the Hang Seng Index was up 2.0% at 20,739 and in Japan the Nikkei 225 Index closed up 0.8% (or 67 points) at 8,877. The South Korean KOSPI was up 1.3% for the session, while the Indian market up 0.8%.

Commodities

The Dollar Index was higher at 78.99 on a higher Euro, while the Australian Dollar last traded higher at 1.0713. Commodities prices traded generally lower.

For the session the benchmark crude NYMEX was down -1.1% (or -$US1.03) settle at $US96.58.  Copper prices are seeking a support level as Copper was down -1.4% (or -5.3 cents) at $US3.7855.  Gold was up 0.6% (or $US9.70) at $US1,759. 

ASX News Today

BHP – BHP Billiton has committed $US779 million to a port project that could increase its WA iron ore exports by 100 million tonnes each year.

BLD – Boral the building materials maker has sold its Indonesian business for $US135 million ($A127.87 million) and confirmed its previous expectations for its half-year profit.

ERA – Energy Resources Australia has posted a $153.6 million loss for 2011 and says production is still having problems with wet weather.

FXJ – Australia’s richest person Gina Rinehart has increased her stake in Fairfax by an estimated 10 percent, at a 10% premium.

LYC – Lynas, the rare earths miner, received a temporary license for its rare earths refinery in Malaysia and says it has a responsibility to the Malaysian community to operate a newly-approved plant in a safe manner.

PMP – PMP, the publisher and direct marketer, has cut its earnings guidance and implemented further restructuring due to poor trading conditions and weaker printing orders.

RIO – Rio Tinto has reported its 40-year-old aluminium smelter at Tiwai Point, near Bluff, had its biggest production year ever in 2011.

STO – Santos says its Wortel operation in Indonesia has produced its first gas, the fourth project in the company’s base business to begin output in the past eight months.

WES – Wesfarmers says Coles had its best ever Christmas sales in 2011, which contributed to a 7.3 percent rise in first half sales to $17.5 billion.

Ex-dividend Date

None

Market Summary 

ASX – to open higher
US & UK/Europe – higher
Commodities Stock Index  up 0.8%
Gold Stocks Index up 1.3%
Oil Stocks Index up 0.4% 

US ADRs – Broadly Higher

BHP up 0.6%,  RIO up 1.5%; AWC up 0.4%
ANZ up 2.1% & NAB up 0.5%
NEM   down -1.9%, JHX up 2.4%, NWS  down -1.2%

By Michael Hevern
Head of Research

For Buy and Sell recommendations on ASX listed companies register for a FREE trial of MDS Financial Research.

Professor Bob Elliott, LCT’s Medical Director said, “A disease-free source herd is an absolute requirement for transplantation of animal cells into humans. The discovery of the Auckland Island herd, its subsequent development and the characterisation of its disease-free properties is the foundation of LCT’s human xenotransplantation trials for diabetes and degenerative neurological conditions.”

Living Cell Technologies (LCT) is developing cell-based products to treat life threatening human diseases. The Company owns a biocertified pig herd that it uses as a source of cells for treating diabetes and neurological disorders. The Company’s lead product, DIABECELL®, consists of microencapsulated porcine islets which are implanted into a patient’s abdomen using a simple laparoscopic procedure. DIABECELL is designed to help normalise the lives of people with unstable Type 1 diabetes, especially those suffering from life-threatening episodes of unaware hypoglycaemia (low blood sugar), a dangerous and potentially fatal diabetes complication. The Company entered clinical trials for its diabetes product in 2007 and very encouraging results have been reported to date.

www.lctglobal.com

http://www.traderdealer.com.au/Fundamentals/lct

www.beaconminerals.com

http://www.traderdealer.com.au/Fundamentals/bcn

These four investment stakes will be acquired from a listed Australian investment company for a total consideration of $3,160,000. The acquisitions are in line with Mariner’s strategy, outlined by Mariner’s new management team in early 2011, to acquire strategic stakes in the small cap sector.

www.marinercorporation.com.au

http://www.traderdealer.com.au/Fundamentals/mcx

The SPI Futures is trading above the key pivot level of 4180, ending up 1.3% (or 55 points) at 4,248. The key levels for our index today are 4200 to 4280.

Yesterday Aussie shares sold down, led by the miners and financials, as investors waited for news on European debt talks, and stocks traded cautiously ahead of the Chinese PMI figures, which beat expectations.

Aussie shares are expected to jump today and traders will be looking to play catch up with positive leads from the US and European markets.

See below for ASX listed companies in the news today.

Economics News Today

* Dec     Building Approvals
* Dec     International Trade in Goods & Services

US Markets

US stock markets jumped overnight, approaching multi-year highs, as traders cheered improving worldwide manufacturing reports.  

The three major indices continued to rise after posting their best January performance in 15 years. All 10 S&P 500 sectors traded in the green, with the gains led by financial and industrial stocks, while technology stocks shook off the disappointing results from Amazon.  

Economic news buoyed sentiment after weekly jobs data showed US employment ahead of the monthly Non-farms employment report due out Friday.  Manufacturing figures improved globally, and a reading on US manufacturing came in at 54.1 for January (up from 53.1).

Facebook has announced its IPO to the tune of $5 billion through Morgan Stanley; the company made $1 billion in profit with revenue of $3.7 billion last year.

All ten company groups that make up the S&P index traded mixed with Materials up 1.0%, Energy up 0.4%, Financials up 1.6%,  Industrials up 1.1%, Technology up 1.0%, while Consumer Staples were up 0.4%.

The Dow Jones closed up 1.0% (or 125 points) at 12,757, the S&P 500 index up 1.2% (or 16 points) at 1,327, the Nasdaq ended up 1.2% (or 34 points) at 2,848 and the smaller cap Russell 2000 was up 1.9%.

European Markets

European stock markets jumped higher overnight, as financials and energy stocks pushed indices higher on the back of improving manufacturing data.  The Stoxx 600 index closed at a six-month high, up 2%.  

Investors cheered improving manufacturing data from China, Germany, the U.K. and the eurozone which came in slightly better than expected (but with the exception of London and China the figures were below the key 50 level which signifies expansion).

Financials performed well, with Italian banks surging after yields on 10-year Italian government bonds fell 22 basis points to 5.64%.  Growth-sensitive stocks performed well as commodities prices rose with gold, silver, copper and aluminium prices all higher, boosting the mining sector to solid gains.  The news on manufacturing figures sparked buying.  

European shares continued higher after data showed that the ISM manufacturing index climbed to 54.1% in January.  Additionally manufacturing data from Germany, the U.K. and the eurozone all boosted sentiment as the German PMI rose to 51.0 in January (up from 48.4), while eurozone PMI rose to 48.8 in January (above estimates of 48.7), while in London the UK PMI hit an eight-month high of 52.1 in January (up from 49.7).

In London the FTSE 100 index closed up 1.9% (or 109 points) at 5,790, the German DAX was up 2.4% (or 158 points) at 6,616, while in France the CAC was  up 2.1% (or 69 points) at 3,368. Spain was up 2.2% and Italy ended up 2.7%.

Asian Markets

Asian stock markets ended mixed yesterday, but are likely to play catch-up today.  

In China the Shanghai Composite Index underperformed down over 1%, despite Chinese manufacturing activity figures coming in better-than-expected, as this raised concerns that the government may not need to immediately ease its monetary policy. The Chinese official Purchasing Managers Index (PMI) was reported at 50.5 in January, up from 50.3 in December (above expectations of a drop to 49.5). The 50 level that delineates expansion and contraction.

The news prompted traders to sell-down resource and property stocks which finished broadly lower.  Elsewhere Japan, South Korea and Hong Kong finished flat.

In China the SSE Composite was down -1.1% at 2,268, while in Hong Kong the Hang Seng Index was down -0.3% at 20,333 and in Japan the Nikkei 225 Index closed up 0.1% (or 7 points) at 8,809. The South Korean KOSPI was up 0.2% for the session, while the Indian market up 0.6%.

Commodities

The Dollar Index was higher at 78.91 on a higher Euro, while the Australian Dollar last traded higher at 1.0711. Commodities prices traded generally higher.

For the session the benchmark crude NYMEX was down -1.2% (or -$US1.13) settle at $US97.35. Copper prices are seeking a support level as Copper was up 1.4% (or 5.1 cents) at $US3.8300.  Gold was up 0.4% (or $US6.40) at $US1,744.

ASX News Today

BLD – Boral, the building materials maker, has sold its Indonesian business for $US135 million ($A127.87 million) and confirmed its previous expectations for its half-year profit.

ERA – Energy Resources Australia has posted a $153.6 million loss for 2011 and says production is still having problems with wet weather.

FXJ – Australia’s richest person Gina Rinehart has increased her stake in Fairfax by an estimated 10 percent, at a 10% premium.

QAN – Qantas says it is in a strong financial position despite having its credit rating downgraded by Moody’s ratings agency.

STO – Santos says its Wortel operation in Indonesia has produced its first gas, the fourth project in the company’s base business to begin output in the past eight months.

WES – Wesfarmers says Coles had its best ever Christmas sales in 2011, which contributed to a 7.3 percent rise in first half sales to $17.5 billion.

Market Summary 

ASX – to open higher
US & UK/Europe – higher
Commodities Stock Index  up 0.6%
Gold Stocks Index up 0.1%
Oil Stocks Index up 0.3% 

US ADRs – Broadly Higher

BHP up 1.3%,  RIO up 2.0%; AWC up 0.7%
ANZ up 1.4% & NAB up 1.1%
NEM   down -0.6%, JHX up 0.5%, NWS  up 1.9%

By Michael Hevern
Head of Research

For Buy and Sell recommendations on ASX listed companies register for a FREE trial of MDS Financial Research.

Commenting on the sale, Boral’s Chief Executive, Mark Selway, said: “The sale of the Indonesian construction materials business is in line with our strategy to realign the product portfolio to focus on core businesses where we hold leading market positions.” Boral will make its first half results announcement on 28 February 2012, with the record date for the FY2012 interim dividend now being 9 March 2012. As foreshadowed at the 2011 AGM, the Group expects first half results to be similar to the results for the second half of FY2011, after adjusting for property earnings which are all expected to arise in the second half of the year and the impact of the closure of the Galong lime plant in Cement. This produces an expected Group Profit After Tax range of $65 – $70 million, before significant items.

www.boral.com.au

http://www.traderdealer.com.au/fundamentals/bld

Greencross was established in 2003 and has grown to become Australia’s leading veterinary services company through the acquisition and integration of 73 practices around Australia. Greencross’s strategy is to continue to consolidate the fragmented veterinary services industry in Australia and is focused on delivering exceptional veterinary medicine and levels of care to its patients. The company’s vision is to be the practice of choice for employees, clients, patients and shareholders.

www.greencrossvet.com.au

http://www.traderdealer.com.au/fundamentals/gxl

Andrew Barlow, CEO of Webfirm Group, said: “Wotif is a recognised world-leader and innovator in one of the fastest growing online sectors. We are excited to be working with yet another classifieds market leader and look forward to playing a key role in building wotif.com’s display advertising revenue.” Robbie Cooke, Managing Director of the Wotif Group stated, “The Adslot platform has a proven track record in the Australian market place and presents an ideal opportunity for us to tap into the display advertising market. We are looking forward to a strong partnership with Adslot.”

With the addition of Wotif.com, Adslot now provides display advertising automation solutions to market leading online classifieds publishers in property, automotive and accommodation across three countries.

www.webfirmgroup.com

http://www.traderdealer.com.au/fundamentals/wfm