ETF Watch – ASX50 & Resources
Two ETF’s that we’re now including in our portfolio construction include.
SFY.AXW SPDR S&P50 Fund & the QRE.AXW Betashares S&PASX200 Resources ETF
Dow Jones – Chart Watch
The Dow Jones is holding above the 20,412 low. A break below will be negative for US equities.
US Q1 17 earnings kick-off next week. Citigroup will be of particular interest when it reports on Thursday.
XJO – Chart Update
The XJO continues to make higher low formations with 5830 providing buying support throughout the past week. If we see price action break below 5830 and then form resistance, we’ll view this as the beginning of structural weakness for the local market.
Gold & Oil – Outperforming
With market volatility picking up as geopolitical risk rises, gold and oil are somewhat of a safe harbour.
In both cases, investors can look at ASX listed ETF’s to capture broad- based exposure, or look at the leading individual company names.
Resources – Stop-Loss Required
Although many resource names have enjoyed a strong rally over the past 12 months, there’s reason to be cautious.
To protect capital we recommend investors holding resource names, run tight stop-losses below the recent lows.
Overall, investors should be reviewing their portfolio allocations, tilting to defensive names and ensuring access to effective portfolio hedging and shorting strategies are in place.
Iron Ore Gets Hammered
With the financial media focused primarily on the US missile strike in Syria, many investors didn’t notice the 7% drop in Iron Ore prices on Friday.
The spot price of Iron Ore fell $5.50 to $75.45 yesterday. This is over 20% lower than the February 21st closing price of $95.00.
Making matters worse, the September contract for Iron Ore on the Dalian exchange also closed 7% lower after trading down to its 8% limit for most of the session.
The sharp fall in Iron Ore will have its biggest impact on BHP, RIO and the Aussie Dollar.
The AUD/USD closed the New York session at a 1-month low of .7495. This is the first close below .7500 since early January and opens up the next support level at .7425.
Investors who would like to profit from a lower AUD/USD can look at the BetaShare YANK Exchange traded Fund. This is an inverse fun which gains value as the AUD/USD falls.
Call in for more details about YANK and the other ETFs that we cover.
US Payroll Preview
The US Non-Farm Payroll data will be released at the start of today’s NY session. With US Stocks reacting negatively to the news of the FED’s plan to begin reducing their balance sheet, attention will be focused on the interest rate aspect of the report.
The consensus headline number is expected at 174,000 new jobs with Hourly Earnings expected to climb by .2%.
The cause and effect logic to the data will be that a stronger report would be negative for stocks, since it would support the odds of another rate hike in June.
Both the DOW 30 and SP 500 indexes are trading below their 30-day moving averages and could extend lower on stronger data. We see downside support at 20,300 and 2315, respectfully.
A large miss in the data would likely lift US stocks on the notion that the FED will remain on hold until August.
Caltex – Chart Update
We’ve been buyers of Caltex at the recent low and see further upside potential to $31 – $32.
US Stocks Reverse Lower On FED Comments
US stocks ended lower on the day after a sharp, mid-session reversal was triggered by comments from the US Federal Reserve.
It was reported that during the last FED meeting, when rates were lifted by 25 basis points, some voting members viewed US equity prices as “quite high relative to standard valuation measures” and that the central bank should take steps to begin trimming its $4.5 Trillion balance sheet.
The DOW 30 posted its largest intra-day downside reversal in 14 months. After an early gain of almost 200 points, the DOW closed down 41 points and near the session low.
Volume was very heavy at 7.5 billion shares compared to the average volume of 6.5 Billion shares over the last month.
It’s worth noting that the process of reducing the balance sheet acts as an accelerator to tightening monetary conditions and is generally not bullish in an over valued market.
FED Balance Sheet
Ansell & Tabcorp
We’ve been recent buyers of TAH and ANN and now look to sell covered call options.
Chart – ANN
Chart – TAH
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