Resource stocks to lead the way

09.44 AEST, Monday 6 May 2013

Resource stocks to lead the way

By Ric Spooner (Chief Market Analyst, CMC Markets)

Friday’s US employment statistics were good enough to change market views on the probability of a severe slowdown in US economic growth rates.

The most significant feature of Friday’s release was the upward revision to previous month’s figures. It’s now apparent that jobs growth has recently been averaging about 200,000 per month. From the market’s point of view, this is a Goldilocks scenario – good enough to provide reasonable growth in corporate revenues but not strong enough to trigger more than a mild tapering in the Fed’s asset purchase program.

Resource stocks will lead the way in early local trading following the strong commodity response to Friday’s jobs number.

Technical traders will be encouraged by the potential for BHP to complete an inverse head and shoulder pattern today. A close above about $32.30 would confirm a break through the “neck line” of this pattern while a move past resistance at $32.80 would add to confidence in the potential for an ongoing corrective rally.

Today’s retail sales figure could significantly influence market thinking on the outcome of tomorrow’s RBA meeting. Markets are expecting low sales growth following strong figures in January and February. A weak number today would increase expectations for a rate cut tomorrow.

Ironically, a strong retail sales figure could be a negative for banks and other “dividend” stocks whose valuations are dependent on an outlook for low interest rates. Pressure on these stocks could intensify with investors already likely to be rotating out of these sectors and into resources on the day.

From a technical point of view, the S&P/ASX 200 index confirmed the potential for a move to higher levels by taking out the 5163 peak last week. Near term support is now at around 5030 represented by the 50 day moving average and the mid April trend peak. It would take a move below this support to change the short term bullish outlook. In the medium term, Fibonacci projections based on past trends, suggest that 5330 has potential to be a significant turning point for the index.

ends

© Scoop Media