Stock Market Review – May 2013

Stock Market Review – May 2013

The Australian stock market has shown some impressive gains for the year to date, however just like the property market, the stock market has markets within markets. In this report we are going to analysis some of these sectors within the broader market and look at what is moving and why.

The All Ordinaries (The key measure for the Australian stock market) started the year at 4665 and currently sits at 5180, a move of some 11%, impressive by any measure. However these healthy gains have not been across the board, but rather limited to the large cap, high yield stocks.

The standout sectors this year (as with late last year) have been the major banks, insurance and telecommunications. The theme being high yielding stocks are what investors want to buy. Yields on these banks have shrunk given the share price appreciation, however the yields are still healthy – Commonwealth Bank (4.9%), ANZ Bank (4.7%), Westpac (5.1%) and NAB (5.6%), along with the banks the following are also offering healthy dividend yields – Telstra (5.6%), Woolworths (4%), AMP (4.8%) and Telecom Corporation (7.1%). As a result of this buying of yield stocks the share prices have continued to rally with the banks the standout, up around the 20% mark for the year.

Given the overall economic situation, high yielding stocks make sense. With interest rates low, and therefore bank deposits, parking your money in high dividend stocks seems like a good option. To top this off these stocks continue to give capital gains. A great result for anyone who has invested in these stocks over the past year.

On the other hand, resource prices have come off a fair bit this year with fears of a slowdown in China’s growth. The main metal that investors use a gauge, Copper is down over 10%. Another gauge of market sentiment are the precious metals, these in particular have been hit hard with Gold down over 15% and Silver 28%. As a result resources stocks continue to struggle along with this general shift in market sentiment – BHP is down over 7% and Rio Tinto 12% for the year to date. Markets tend to over react in both directions, have these yield stocks been overbought and resources oversold? Only time will tell. However the theory of buying yields and selling risk makes a lot of sense. On historical valuations the banks in particular do not look over valued, however as these share prices increase, these yields are dropping.

Will this theme continue? No one has a crystal ball, however given the current economic conditions, these ‘safe havens’ that are paying a nice dividend make sense. Where else do you park your money? Bank deposit rate are not very appealing. Property could be the next beneficiary with both residential and retails rental yields staring to become attractive.

The above information is general in nature and should not be seen as investment advice, but as general market commentary. Please seek financial advice relevant to your own personal circumstances.

Dave Limburg is a fulltime trader and stock market educator,  he runs The Everyday Trader website – Providing educational packages offering courses in how to trade the markets. www.theeverydaytrader.com

Potential Short Setup – CDD Cardino

CDD has built a nice head and shoulders pattern on the daily chart with the head at 7.35 and the neckline at 6.60. This neckline now looks poised to be broken. A move through 6.60 signals a short with a stop back within the pattern around 6.80. The head and shoulders chart pattern gives a projected target around the 6.00 region, which incidentally is the previous significant low.

These are my observations and should be viewed as educational, please do your own research.

Short Setup – ERA (Energy Resources Australia)

ERA has formed a nice short set up on the daily chart. The pattern is a tidy head and shoulders with the neckline and support currently at $1.28. This neckline looks likely to be breached suggesting targets around the $1.20 region. We would set a stop back within the pattern around the $1.33 level.

These are my observations and should be viewed as educational, please do your own research.

Short Setup – MDL (Mineral Deposits)

Short Setup – MDL (Mineral Deposits)

MDL has formed a clear short chart pattern here. If we look at the weekly chart there is a very clear topping pattern in place where support was, in the 420s range, this was broken November last year, retested and held as resistance. Since November the stock has formed a tidy triangle on the daily which was been broken around 4.00, retested and now looks likely to break down again through 3.80. We would set a stop above the previous break down point and targets look to be 340s before going as low as 305 area and the weekly suggests right down to the 1.80 region in time.

Weekly

Daily

These are my observations and should be viewed as educational, please do your own research.

Potential Short Trade – Mincor Resources (MCR)

Mincor (MCR) has formed a nice triangle on the daily chart and looks poised to break down. Some recent daily candles have shown attempts to bounce off support at 88c and failed, a move below 87c looks like the trigger of a short postion with a stop loss being set just above the break point around 91c. This stock can be a bit thin, so position sizing is important. We would be looking at a half sized position on a triggered short.

As always, do your own research.

Chart break alert – Buru Energy (BRU)

BRU has had a stellar run over the past 2 years, running from 20-30c to over $3.80. However the chart has indicated this run has topped out and a nice topping pattern is now in play. This pattern has already broken down with $2.50 being the resistance level that is now support. The stock in now in a consolidation pattern within the bigger picture, odds suggest that the next move will be down, the topping pattern suggests a move towards $1.60 is likely. A stop about $2.50 would be wise.

The weekly chart paints a clearer picture.

As always, do your own research.

Short Trade Setup – OceanaGold (OGC)

OceanaGold has form a nice triangle setup on the daily chart and is threatening to break down. A move below $2.50 triggers a short trade with a stop above the break point, around $2.57 would be wise.

As always, do your own research.

Chart Breakout – Dyesol (DYE)

Dyesol (DYE) built a lovely base over the past 10 months between 9c and 16c. This 16c resistance proved reliable, holding 4 times before being broken earlier this week. The stock broke out of this tidy base pattern on big volume running to 19.5c, it has since had a healthy pullback to hit 16c today and bounce. This offers a low risk, potential high reward entry level on DYE just above the breakout point. A stop should be set just below the resistance (now support) level of 16c. The base pattern suggests a first target of 23c (9c-16c range added to the breakout point gives 23c). The weekly offers much higher targets. Here is the daily chart

And to give some indication of the potential upside, here is the weekly chart.

As always, do your own research.

Potential Breakout – Ramelius Resources RMS

RMS has set a nice basing pattern over the past few months and looks primed to run. A break of 48c is the key resistance level.

A break of 48c suggests a first target of 58c. A stop loss at 46c would set upon a break of 48c.

As always, Do your own research.

Potential Breakout Alert – Funtastic (FUN)

FUN has formed a tidy triangle over the past few weeks right on the previous resistance level of 21.5-22c. A break of this triangle (through 22c) appears to be on the cards. This pattern gives a price target of around 30c. An increase in volume adds strength to the breakout.

As always, do your own research.