Is it time to press the buy button?

This week was a great example of what climbing the wall of worry is all about. On one hand, we had a run of worrying economic readings here and abroad, meeting more bad job news in Australia. Then the Yanks trumped that with the S&P 500 index smashing the old all-time closing high of 1848.38 to finish at 1854.29 on Thursday.

This led me to worry about and ponder: could those positivity-loving Americans get up and do it again on Friday? And yes, they did!

And what happened to local negativity when our US buddies hit the buy switch? Yep, we went long stocks, with the S&P/ASX 200 index spiking up 24 points in early trade on Friday, though, as per usual, we chickened out by the afternoon to be down a few points.

However, this Friday rise of the S&P 500 to a new all-time closing high should get us positive on Monday.

How the Yanks can throw off negativity so easily made me recall that great Homer Simpson line when Montgomery Burns said: “Well, if it’s a crime to love one’s country, then I’m guilty. And if it’s a crime to steal a trillion dollars from our government and hand it over to communist Cuba, then I’m guilty of that too. And if it’s a crime to bribe a jury, then so help me, I’ll soon be guilty of that!” And Homer joined in: “God bless America!”

The positive vibes from the US, whose market still leads our market, followed the Fed boss Janet Yellen playing the ‘weather girl’, a job undoubtedly this brilliant woman has never aspired to. She speculated that the bad weather explains the ordinary data that has turned up in the States but, more importantly, she left the message that she did not seem phased about it. Now that means she would not have to slow up the tapering process, which says central bank stimulation will continue to recede.

The stock market has liked the idea that the US economy is on the mend and no longer needs the life support of QE3, and tapering is seen as a sign that now good news is good news. There was a time when bad economic news meant no tapering and that actually helped stocks go up. But now the positive stories for the US economy have been crucial to the S&P 500 going to a new high.

Technical analysis wise, breaking the 1848.38 level means this one-time resistance point can become a floor and should help stocks head higher. Friday’s rise on the S&P 500 is a great technical sign.

Last week on my Switzer program, Gary Stone of Share Wealth Systems told me that the signals were there to get back into the market, after he had turned tail and ran in early January. As he put it: “I’m fully invested.”

Adding to overseas positivity was US retailer J.C. Penney, whose share prices jumped 26% after it projected a rise in yearly revenue and bigger margins. This chain has been a basket case business for ages and its success had to be helped by a more buoyant consumer. In fact, one of the pieces of good news overnight for Wall Street was the final read on February consumer sentiment, which bettered expectations. In addition there was a solid read on existing home sales. These are even more impressive, considering the continuation of shocking polar weather in the States.

Also, over the week, durable goods orders fell by a less than expected 1% in January, after a 5.3% fall in December. Excluding transportation, orders rose by 1.1% in January – the largest rise since May 2013.

Technical analysts in the US think beating 1840 on the S&P 500, then a close over 1850, means the lure of 1900 (and then 1925) lies ahead and could easily materialise.

This has been a good effort when you look at the headwinds from freezing weather, related weaker economic data and the Russian military threat, which has to be watched as a curve ball factor that could hurt this current optimism. (But think buying opportunity if anything stupid happens.)

In Europe, German business confidence rose in February to its highest level since July 2011, suggesting Europe’s largest economy will grow faster in the first quarter, after expanding only modestly last year. Its retail number was the best in seven years and Euro zone inflation came in higher than expected – 0.8% rather than 0.7% – which is now considered good news, as it indicates growth and demand are on the rise.

Stock watch this week

Roger Montgomery revealed Seek is his fund’s biggest hold and this might be remembered when we see the next sell-off. He warned about brokers scraping the bottom of the barrel with some speculative stocks between now and the next reporting season in August.

Two companies where he sees some value are Woolworths and CSL, with the latter likely to be a beneficiary if the dollar falls. On that subject, the biggest call of the week goes to Deutsche Bank economist, Adam Boynton, who said a 66 US cents Aussie dollar is a possibility. I don’t expect this to happen but I’d be happy for a lower dollar to really help our stock market.

Meanwhile, Charlie is still gambling on Crown, with a three-year price target of $26. And as it is currently $17.28, that would be nearly a 50% gain over three years, which would be a nice return if it happens (though in three years’ time you might be seeing the more nervous and more warning side of the so-called eternal optimist, Peter Switzer). Be warned, I will turn one day but it won’t be anytime soon.

I was impressed with Ardent Leisure’s Geoff Shaw, when I interviewed him this week on Switzer. His subtle positivity about his company’s prospects were not all Dreamworld, in my opinion. This was a stock I brought to you via Geoff Wilson a few months back and it does look like the ducks are lining up nicely for the company.

By the way, I haven’t mentioned Qantas, simply because I don’t like airlines, and the same goes for insurance companies. They are for speculators, not long-term wealth builders.

Top stocks – how they fared

Numbers that moved the market

A drop in the Chinese housing prices index drove down Asian and Australian markets early in the week and caused a reversal in direction among local mining giants, including BHP, Rio and Fortescue. The housing index fell from 9.9% in December to 9.6% in January – but had the positive effect of reducing investor fears over a potential Chinese housing bubble.

The US S&P 500 market reached an all-time high on Wednesday night, as stocks rose to a record 1,854.29pts (up 0.49% at close). This was driven by a positive economic view from Federal Reserve chair, Janet Yellen. Gains in technology equities such as Netflix and Facebook also contributed to the stock market increase.

Australian business spending (a.k.a capital expenditure or “capex”) figures took a significant hit this week, falling 5.2% in the December quarter – despite economist predictions of a 1% dip. The drop indicates the move away from the previously booming mining sector has been sluggish. The Aussie market fell later in the week as a result.

And finally, good news for Aussie home sellers as auction rates across capital cities reached record highs. The clearance rate got up to 82.0% across 2,847 auctions – with Sydney leading the pack with a huge 87.5% clearance rate.

The week ahead

Australia
March 3 Business Indicators (December quarter)
March 3 Performance of Manufacturing (February)
March 3 RP Data/Rismark home prices (February)
March 4 Balance of payments (December quarter)
March 4 Reserve Bank Board meeting
March 4 Building approvals (January)
March 5 Economic growth (December quarter)
March 5 New vehicle sales (February)
March 5 Performance of Services (February)
March 6 Retail trade (January)
March 6 Exports & imports (January)

Overseas
March 1 China manufacturing PMI (February)
March 3 China services PMI (February)
March 3 US ISM manufacturing (February)
March 3 US Personal income (January)
March 3 US Auto sales (February)
March 5 US Beige Book
March 5 US ADP employment (February)
March 5 US ISM services (February)
March 7 US Non-farm payrolls (February)
March 7 US International trade (January)

The new financial quarter begins next week which means we have to strap our seatbelts on for the “Autumn Avalanche” – or in other words, a huge inflow of key data from the previous quarter. The big figures of the week in Australian start on Monday with the release of RP Data-Rismark’s home value index – with a 0.3% decrease predicted, this is sure to quell some concerns over the alleged “housing bubble”.

Then on Tuesday, investors will be closely watching Balance of Payments data and government finance statistics to give us an indication of economic growth in the December quarter. Of course, they won’t have to wait long for a definitive answer, as the ABS releases that figure the next day. Economists are predicting annual growth to return to a “normal” rate of 3.00-3.25% over 2014 (currently 2.5%).

Offshore, it will also be a busy week for data reporting. On Saturday, official Chinese PMI manufacturing data will be released, with the services sector equivalent released on Wednesday. Then turning further west, there will be plenty of American data to keep investors busy. However the highlight will be US non-farm payrolls (i.e. employment data), with economists predicting 160,000 new jobs were created in February.

Calls of the week

My first call this week goes to the Switzer Super Report’s very own Paul Rickard, for his call that the banks are still worth holding on to. He says that even though the analysts are telling you otherwise, there’s still good value in major banking stocks, with CBA posting cash earnings results of 14% over the last few weeks. ANZ and NAB aren’t far behind on 13% and 7% respectively.

In second place, we have Charlie Aitken’s backing of Crown (CWN). As he points out, shares in the James Packer’s Crown have doubled in value in recent years and the business has great growth prospects for the future. Charlie is predicting a dividend stream of $426 million over the next three years.

Malcolm Turnbull’s comparison between Opposition Defence Minister Stephen Conroy and mad Apocalypse Now villain Colonel Kurtz. The call comes after Conroy accused decorated and respected Lieutenant-General Angus Campbell of a political cover-up involving the Manus Islands detention centre – and then refused to apologise for his comments. Oh dear.

Oh and let’s not forget “faux pas of the week” which goes to yours truly, after I accidentally introduced Roger Montgomery as the founder of “Buckland” Investments when he came on the show during the week. Well, as Roger said, David Buckland – CEO of Montgomery Investments – would’ve loved it!

Food for thought

“Many of life’s failures are people who did not realise how close they were to success when they gave up.” – Thomas Edison

As you probably know, Edison was the brains behind the light bulb – among several other inventions we’ve come to rely on in daily life. However it is rumoured that he made over 1,000 different versions of the light bulb before discovering the one we still use today. When a reporter asked him about his many failures, Edison simply said, “It just meant that I was that many times closer to success.”

Last week’s TV roundup

We had a couple great guests on the program this week, starting with Rudi Filapek-Vandyck on Tuesday. With company earnings season in full swing, Rudi told me what investors should be excited about and what they should be a little worried about.

Next up, I spoke with AMP SMSF’s Peter Burgess, after hearing rumours that around 100,000 SMSF trustees will be receiving notices from the ATO over coming weeks… Quite frankly, that sounds a little scary to me, so I got Peter on the show to explain what’s happening and how it will affect trustees.

Also on Wednesday I chatted with Switzer regular and MD of Share Wealth Systems, Gary Stone about his recent market analysis and insights. When Gary last came on the show in December he was feeling pretty uneasy about market conditions, but he’s now 100% invested – watch this video to find out why.

Then to round up the week, I spoke with a Switzer favourite, Roger Montgomery, about the hot topic of the week: Qantas. As we all know, things aren’t looking great for the Flying Kangaroo – so what’s causing these financial problems and where will our national airline end up in the future?

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.

The biggest mover this week was a company not regularly seen on this list – Kingsgate (KCN). The gold mining and exploration decreased by a huge 3.14%. Meanwhile, both Monadelphous (MND) and Leighton Holdings (LEI) stayed more or less flat, each dropping 0.01%.

My favourite charts

As mentioned above, Gary Stone came on the program this week and as always he brought with him a selection of great charts. I particularly liked this one mapping the Continuous Commodities Index (CCI). The chart spans about four years, showing the movement in commodities from the peaks of mid-2011 to now. Gary says despite the slow start to the year, recent gains – driven by gold, crude oil, coffee, cacao, and a few others – are encouraging. When I asked him what message my viewers should take from this, he said they ought to “get ready for a fair dinkum bull market” – sounds good to me!