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Great week for stocks! Can it last?

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What a week! The best in six months, with the S&P/ASX 200 index up nearly 39 points (or 0.76%) to finish at 5157.5. The gain for the week was 220 points (or 4.5%) and the likes of BHP was up 19% whilst Rio added around 11%.

It’s music to my ears and eyes but can this optimism last?

A few weeks ago, I wrote about what had to happen to turn around the persistent negativity on our market and also global stock markets. I looked at what might help us bust out of the trading range that has run around 4700 to 5200. I also pondered how CMC’s Michael McCarthy’s 5900-call could happen this year. And in recent weeks, surprisingly, a lot of what I said would have to happen has actually followed the script. I thought Macca’s call might be more fiction than reality but life can be stranger than fiction!

Let’s recap on what I hoped for and see what has happened to try and work out if this nice run for stocks can last. Here goes:

A look at the charts for the S&P/ASX 200 shows the index is trying to break out of the persistent trading range I mentioned above. What happens in Doha could be a ‘make or break’ moment for markets. Certainly, since the Doha meeting was put on the table, the oil price and stocks have headed up, so you can’t be dismissive of this pow-wow. Sure, demand is up as supply has eased, with many US oil rigs closed down due to the persistent unprofitable price of oil. On April 8, Baker Hughes told us that 55.2% of rigs have been shut down, which is huge. “Rig count is again at the lowest level since Baker Hughes started counting rigs in 1949,” the rig counting group reported. “It is likely the lowest back to around 1860 or 1900, if only rotary drilling rigs are counted.”

I also suggested that the Oz dollar needed to stay closer to 70US cents, rather than the current 77.2US cents level it is this morning. I never expected iron ore prices to keep trending higher, however, when commodity prices recover, it drives our dollar higher.

As you can see, despite this crazy world of financial markets, stressed out economies and policymakers, just about all of what I hoped for has come to pass. Even my calls that the Oz economy was better than what doomsday merchants kept predicting has resulted in our latest growth number coming in at 3%, while unemployment has dropped to 5.7%. According to too many economists, this was supposed to be around 6.3% by now.

The one big disappointment has been Malcolm Turnbull and his impact on political as well as consumer confidence. I hope the Budget in 17 days’ time can turn around the current Turnbull turn-off we’ve seen in the polls. I think the local consumer is crazy to be negative, with the jobless rate falling, interest rates where they are and how the economy has been performing. I guess the bad start to the stock market this year and the cooling housing market explains some of the recent negativity but I still think they’re mad if the current environment worries them.

Can this market turnaround last? I think Sunday’s meeting in Doha is symbolically important. If it hurts oil prices, then this week’s optimism will be tested by hedge fund managers and their short-seller buddies. If economic and earnings data keeps to the current trend (which I think is highly possible) and the oil producers don’t behave like the madmen they’ve often imitated, then this positive market has legs.

What I liked

What I didn’t like

Can it last?

I think Doha is more important for market sentiment, as oil prices are more important than I thought. If earnings, economic data and central bank actions remain positive, we can go up from here. Sure, Donald Trump and Brexit are curve balls out there but I think they’re manageable. Macca’s call for 2016 looks a real possibility!

Top stocks – how they fared

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The week in review

(click the blue text to read more)

What moved the market

The week ahead

Australia

Overseas

Calls of the week

Food for thought

The stock market is designed to transfer money from the active to the patient

– Warren Buffett, US businessman and investor.

Last week’s TV roundup

Stocks shorted

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table also shows how this has changed compared to the week before.

This week Bellamy’s Australia was, not surprisingly, one of the biggest movers. It’s short position increased by 2.66 percentage points to 7.71%.

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Source: ASIC

My favourite charts

NAB business conditions hit 8-year high

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Source: NAB

The NAB Business Survey revealed business conditions hit +12 points in March, an equal high since early 2008 and above the long-term average of +5 points. The business confidence reading also surged from 3.4 to 6.1 – top news for the economy and Malcolm.

Nothing new in IMF’s call

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Source: AMP Capital

AMP’s Shane Oliver explained why the latest downgrade to the IMF’s global growth outlook is no reason to be concerned. As the chart shows, its business as usual for them, with the trend over the past five years or so showing forecasts are generally revised from levels around 4% to 3%.

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