At this week’s Trade Strategies and TradingKey sessions we discussed the fact that this a time when sentiment is vital and volatile market swings are likely. I don’t want to sound like a broken record but a look at the bigger picture can do wonders for the analysis of any trade - regardless of the time of year, the market to be traded and even the prevailing market conditions.
So far, 2012 has been an excellent year for the US markets, while the ASX 200 continues to be rather lacklustre by comparison. Still, there have been gains and the growth of nearly 8% for the year is as close as we’ll get to a sign that the market has bottomed.
As always, corporate earnings tell much of the story. Earnings season in America is upon us once again and the results so far have been nothing short of spectacular. Apple jumped 9% in intra-day trade, proving that consumers do have the funds to fork out for its shiny new tablets and mobile phones. Yesterday’s move in Apple was the single biggest one-day jump since 2008, when wallets were open and demand for consumer goods was perhaps a little too healthy. So, even without easy credit and overpaid salaries, American consumers are again showing demand for goods and services. Another standout has been Boeing, whose improved earnings are another sign that businesses and are on the rebound with another excellent quarter and a revised full-year outlook.
Sector-specific selection has been imperative in 2012. As the world recovers from the Global Financial meltdown, demand has blossomed again in certain sectors and in certain corners of the globe.
The charts tell us that the ASX200 is showing signs of increased confidence with its recent range-bound movements tracking upward:
click to enlarge
But the US markets appears to be in a much more healthy state:
click to enlarge
Both markets may be entering the mature stages of this recent rally but there is still money to be made, even at these levels. The stocks that are set to outperform are those that are less susceptible to short-term volatility and that have a business position leveraged to consumer demand.
The all-American bellwethers offer the most hope for further gains, particularly the likes of Apple, Amazon and Google. In Australia, there are also several stocks that show promise.
Pre-computed scans are an excellent way to filter entire markets to locate trades that meet specific criteria. An analysis of specific sectors and their performance can indicate the areas in which to be overweight.
While diversification remains important, based on the building momentum of this market and the static fundamentals that have influenced performance thus far, a strategy of backing major performers is likely to be of benefit for some time.
Stay Ahead of The Game,