It is really difficult this week as I would like to see a correction, but even if New York is putting in a top here in my timing box, I’m not sure what sort of correction to expect – very shallow or a bit deeper. The S&P 500 registered the highest close since 2007 but didn’t quite take out the intra-day high made during September. Would have preferred to see that high exceeded as well to be convinced that there aren’t a lot of stops still lurking there. Markets usually like to run the stops. This leaves open the risk of one more little wave up. The Russell 2000 continued to lead making another new all time high. I am taking a fairly cautious stance now till I see the nature of the next correction.
Australia marked time this week but the Banking Index has now had 8 consecutive weeks of advances which is getting a wee bit overdone. But in the background, we have been seeing quite a bit of internal rotation in some of the leaders as it seems that as soon as prices dip, there are willing buyers waiting. This has been acting as a relief valve for our market. The stocks that I use as a guide to the strength of the Australian economy, have had fabulous moves – why is everyone so negative on Australia? Just to mention three that I really find helpful as a guide - Boral, Macquarie Bank and Lend Lease - have all had huge rises. I would certainly like to see a correction in these stocks which I have to say I would view as another buying opportunity. I have been mentioning these stocks, among others, for months and they certainly haven’t disappointed.
But the big news this week was the iron ore price. What a change from the low at the end of August/early September when all comments were predicting the end of the world as we know it. Probably getting a bit overdone in the short term but I must say even I have been pleasantly surprised at the strength we have seen. Makes last year’s low look even more solid which is good news longer term.
Other commodities have been slow to follow the lead being set by iron ore. Copper has been trying hard to break out of its long term downtrend. Encouraging but still not confirmed. Silver has been a bit better than gold which is good but neither have been able to confirm anything. A bit of interest in softs after a long period of being out of favour. Coffee prices have had a good up-tick – bet your cup of coffee didn’t reflect the big fall in coffee prices over the last couple of years but I have no doubt we will quickly see the price of your humble cup go up with the bean price. The US dollar holds the key and there has been a little bit of weakness starting to creep in there, particularly against the Swissy and Euro, which should prove beneficial to commodities. Also no one mentions inflation anymore with quite a few people talking of deflation. My analysis suggests inflation is hiding just around the corner.
To sum up – I put a lot of value on sentiment. Many of the people that were negative in early December are still negative which I see as being positive for the market! Keep an eye on Shanghai. That came off nicely on Friday after getting VERY overbought. At the moment our market is being influenced by what is happening in Asia as well as New York but I am hoping that by the end of this week (my next time line is around 19th) the markets will give a clearer picture. But as mentioned above, feeling a bit cautious till we see a correction but still think the surprises in the first half of 2013 are going to be on the upside....
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