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It’s been an eventful week for global indices, with a number of influential factors causing the Australian bourse to see-saw its way to its current position, comfortably above the 4200 mark although still threatening to re-test those levels over the coming month.
We entered the week factoring in an optimistic US reporting season. Kicking the earnings season off was Alcoa, an important bellwether of US corporate earnings. The figures were positive, once again setting an extremely high bar for the remainder of the US corporate earnings season.
US
After setting such high expectations, it is no surprise that any less than impressive results are likely to trigger a further sell-off and any better than expected results will widen the heightened expectations of analysts and investors. Hardly a situation for the less than aggressive investor.
Intel saw a profit of just under $3 billion and sales soared some 34% seeing the stock experience several consecutive days of gains and painting a rosy picture of the chip maker as it emerges still a key player in the technology sector despite increased competition amongst key competitors. Looking at the price chart, however, the technical’s paint a rather different picture.
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Earnings performance has been exceptional, yet exceptional performance appears well and truly factored into Intel’s share price. As many will be aware, once the news hits the streets, it’s more than likely too late to benefit from an increase in share price. That’s why an integrated approach of technical and fundamental analysis holds the key to profiting from a company before the news hits the street. With a view of both technical’s and fundamentals, traders can enter a stock with a multi-dimensional approach. The long term fundamentals suggest Intel may provide positive returns over the longer term, yet technical analysis suggests that now may just be the time to sit on the sidelines and enter at a cheaper price in the near future. For more on Integrated Analysis, look at www.integratedinvestor.com
A point of interest, major US banks, which were also factoring very large expectations for quarterly earnings are facing a similar picture. Bank Of America, JP Morgan and Citigroup all surpassed expectations on the upside and according to many reports may just represent value at current levels. For Bank of America, one might agree, although JP Morgan spells trouble ahead with a few great shorting opportunities definitely a possibility for those who are long the idea of flailing US banks.
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Europe
European debt issues are not dissimilar to allergies in the height of summer. Just as you feel a little relief, the world begins to sneeze. And sneeze it did. We saw a downgrade in Ireland’s credit rating by Moody’s Investor services and the Euro continues its slide against international currencies. Spain also faces the threat of losing its Moody’s AAA rating as they continue to struggle to meet fiscal targets and short-term financial costs. What we do know is that unlike the allergies this is one issue that may last longer than the European summer. European debt issues are here to last and until resolved, will continue to weigh on financial markets around the world, more accurately reflected by the charts on major US and European banks.
Asia
Chinese markets saw consecutive gains this week although the government isn’t showing signs of easing its foot on the brakes intended to slow Chinese economic growth. Instead, it is showing signs of increased domestic investment which will curb China’s reliance on commodity imports from other countries.
Summary
Earnings season isn’t yet over in the US and is sure to be holding a few surprises for markets in the coming week. This is never a time for the faint-hearted but what we do know is the direction of the market will be a lot clearer as we enter the beginning of the third quarter.
Value is present within certain sectors. Identify opportunities through thorough analysis of both technical and fundamental plays. If you haven’t yet viewed the Integrated Investor software, now is the time to broaden your approach to trading.
Happy Trading
Lachlan McPherson
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