Today's Trade: A move on AMP, short-term AUDUSD foray
- S&P/ASX 200 Index futures contract rose 0.6% to 5,787 after oil price rise
- Violence in Libya and the Chinese move fuel a buy-up in oil
- Gold futures remain unchanged; iron ore down 1.5%
By Saxo Capital Makets (Australia)
A choppy session took place in Europe overnight with volatility around unwinding of earlier moves from the ECB’s decision to restrict Greek banks access to liquidity. The ECB will no longer accept collateral offered by Greek banks in return for financing, leaving them dependant on the ECB’s emergency liquidity program.
- The US markets were strong on two fronts. The first being the rise in oil price with Brent up 4%. The second came following the announcement of Pfizer’s $17 billion merger plans.
- The night finished with the Dow Jones, S&P 500 and Nasdaq all up 0.9%, 0.8% and 0.7% to 17,836, 2,057 and 4,752 respectively. The UK FTSE was also up 0.1% to 6,866 where both the Stoxx50 and DAX where down 0.2% and 0.1% to 3,409 and 10,905 repectively.
- S&P/ASX 200 Index futures contract rose 0.6% to 5,787 following the uplift in the oil price and the announced $17bn merger from Pfizer
- Bank of New York Australia ADR Index is up 1.8% with BHP Billiton ADR +1.6% and Rio Tinto ADR +2.4%
- Gold futures remain little unchanged at $1,264. Stocks to watch: NCM, NST, AQG, EVN, KCN, RMS, SLR
- Iron ore was down 1.5% to US$61.64/tonne with poor fundamentals causing little buying pressure. Fortescue Metals (FMG) has had a major US hedge fund make a 5% purchase of total stock. A falling Iron Ore price mixed with speculation of a potential take-over makes FMG a tricky trade. Stocks to watch: BHP, RIO, AGO, FMG, BCI
- Crude Oil rose after increasing violence in Libya caused output to fall. The Chinese central bank reducing its banks capital requirements has alleviated some of the supply and demand concerns, fuelling a buy up of oil. Stocks to watch: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- JB Hi-Fi (JBH): Real chance our second profit target of AUD16.90 (+6.9% profit) will be hit today. Be aware of the days movements. Total return if 50/50 first and second profit target were taken generated a 5.65% return in 6 trading days.
One New Trade
AMP Limited (Ticker: AMP:xasx), Australia’s largest independent wealth management company yesterday broke its six-year trading range to the upside forming a very bullish signal. This is a significant move as three attempts in the past have failed to break the AUD5.95 level. Yesterday's trading session saw AMP gap up on open and trade up to a five-year high. We view this is a valid breakout and have a price target of AUD8 in the medium to long term.
AMP monthly chart
Breakouts of trading ranges are of the most respected price movements by technical traders. Trading ranges are considered periods of energy accumulation and when the price finally breaks this range, the accumulated energy is unleashed resulting in a significant price movement in the direction of the break.
- (30/1) JB Hi-FI (Ticker: JBH:xasx): Entered long position on January 30 at AUD16.70 as stock has been forming a BULLISH WEDGE leading into their reporting. First profit target around AUD17.47 (+4.4%) and second profit target at about AUD17.90 (+6.9%). Stop loss trailed to entry price of AUD16.70
- (22/1) Bluescope Steel: BSL is heading back up to its resistance level of AUD5.37 where there has been quite a lot of noise since January 2014. Should it fail to push higher above this level, a head and shoulders pattern will be completed where a quick and swift sell off is expected. Sell Limit: from AUD5.33 to about AUD5.37 with a stop loss above AUD5.62 (Loss: 5.4%). First profit target: AUD4.70 [December 14 low] (Profit: 11.8%), Second profit Final Target: AUD4.04 (Profit: 24%)
- (21/1) Accumulation of the big four banks. Buying is coming back in the past couple of days and it appears as if our divident yielding banks are back on investor radars: ANZ, CBA, NAB, WBC
NOTE: Myer (Ticker: MYR:xasx): Yesterday our second and last profit target was reached on Myer Holdings where we were able to unwind our entire long position at a 9.3% return. For those that wish to hold onto their long positions, the next level to watch out for is AUD1.87.
- Boral (BLD): Cut to neutral vs overweight at JPMorgan
- Brambles (BXB): Cut to hold vs add at CIMB
- Charter Hall Retail (CQR): Cut to underweight vs neutral at Commonwealth Bank
- Fletcher Building (FBU): Cut to underweight vs neutral at JPMorgan
- Monadelphous (MND): Cut to hold vs buy at Morningstar
- Qantas (QAN): Cut to sell vs hold at Morningstar
- REA Group (REA): Raised to buy vs underperform at BBY; cut to neutral vs buy at UBS; cut to neutral vs outperform at Credit Suisse
- Seven West (SWM): Cut to neutral vs buy at Goldman Sachs
- Stockland (SGP): Raised to overweight vs neutral at Commonwealth Bank
- Tabcorp (TAH): Cut to neutral vs outperform at Credit Suisse; shares halted until as late as Feb. 10 for equity raising
- Toll (TOL): Cut to reduce vs hold at CIMB
Yesterday’s trade idea on the AUDUSD was a profitable trade. While the stop loss was not touched, the profit target was achieved at 0.7820. The AUD had yet another relatively narrow ranging day overnight ahead of today’s RBA monetary policy statement. We do not expect any additional surprises in this statement and the rapid rebound in the price action from the recent bottom of 0.7625 after the RBA rate cut, signals that we would see further upside momentum as now the AUDUSD is forming an interim uptrend while the downtrend channel looks to be broken.
AUDUSD is expected to trade around 0.7800 but we believe it would test the key resistance level 0.7852 today and a break out of this level is predicted.
Stop loss: 0.7771
On the back of the US market rally, we expect the ASXSP200 to continue its solid upward momentum although it is trading in the overbought area. The uptrend channel is still intact which restricted some further upward move overnight. We will not be surprised if we witness some profit taking during today’s trading session but any dips will provide some buying opportunities (Scenario B).
Entry: limit 5,820
Stop loss: 5,769
Scenario B: Buy ASX/S&P200
Entry: limit 5,767
Stop loss: 5,750
-- Edited by Adam Courtenay
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets