Page 1 of 8

The views expressed in this report are those of Lesley Beath and may differ from Morningstar's views.

Reviewed this week

A selection from the Insurance and Wealth Management sector and Iluka, which we take a somewhat speculative stance on.

• Overview
  Dead cat bounce or something more? More...
• QBE Insurance (QBE)
  Looking interesting again. More...
• Suncorp Group (SUN)
  Near-term risk has abated. More...
• AMP (AMP)
  A bounce from long-term support. More...
• IOOF Holdings (IFL)
  An improving profile. More...
• Platinum Asset Management (PTM)
  A new Buy signal. More...
• Iluka (ILU)
  A trading opportunity – keep the stop-loss tight. More...

 

Please note: before making an investment decision, Morningstar recommends you read the fundamental research available on these stocks.

Disclaimer: To the extent that any content in this report constitutes advice, it is general advice that has been prepared by Lesley Beath without taking into account the particular investment objectives, financial situation and particular needs of any individual investors. If necessary, you should consult with a licensed investment adviser or dealer in securities such as a stockbroker before making an investment decision. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

Overview

In the last report, I noted there had been some positive developments in the US market. Let's quickly recap.

The S&P 500 had bounced from its 200DMA, as had the Nasdaq after completing a 50 per cent retracement of the November-to-March advance.

This came as bearish sentiment pushed well above its historical average and approached levels associated with the lows of last September/October and August 2010.

There was also some weakness in the US T-Bonds, as they tested the resistance of the upper limits of the major trend channel that has been in existence since 1986.

The US Dollar Index, which has risen in tandem with the bonds since early May, was also testing a significant resistance level. And the VIX had reversed sharply, registering a medium-term Sell signal.

These events gave a glimmer of hope after the declines since the beginning of April.

Are these positive signals still in place, or was this just a quick rebound from an oversold condition?

I don't think that question has been answered just yet, but the technical position of the S&P 500 and the VIX suggests we could get a resolution relatively quickly.

As the US market will open on the results of the Greek election, it will be interesting to see whether or not the support and resistance levels on the S&P 500 and the VIX (outlined below) will be convincingly broken.

If they are, we could see continued short-term strength in the equity market. But, at this stage I don't think that negates the potential for another sell-off later in the year.

A look at the Feature chart which depicts the S&P 500 and the VIX shows the former testing resistance and the latter close to support.

The resistance is associated with the 6 March low, but it also could be interpreted as the neckline of a small "head-and-shoulders" reversal pattern.

Interestingly, the pattern that has developed on the VIX over the past month can also be construed as a head-and-shoulders reversal pattern.

That these two patterns are occurring simultaneously suggests that if the resistance on the S&P and support on the VIX is broken, we could see a rally in equities that could persist for the next month or so.

As for the US Dollar Index, it retreated last week but it is holding above the support of the January peak.

The US T-Bonds are also holding above support at this stage, but if both levels are broken it would add to the possibility that the recent lows in the US equity market marked a medium-term (one to two months) reversal.

As for the old favourite, the US T-Bond/S&P 500 ratio, it has not reached any significant resistance levels but has retreated over the past two weeks and there are Sell signals in place.

So, we continue to see improvement in the US equity market, and there are also some encouraging signs in Japan, where both the Nikkei and the Topix have bounced off long-term support.

China bounced during the week, but as noted in the last report, the Shanghai A Shares Index broke below the January uptrend and this is a concern for our resource stocks.

There was no downside follow-through last week and the Shanghai B Shares Index has bounced from support.

While this is a slight positive and there is a short-term Buy signal in place, at this stage there is insufficient evidence to suggest that a low of significance has been registered.

(click image to enlarge)

(click image to enlarge)

(click image to enlarge)

(click image to enlarge)

(click image to enlarge)

(click image to enlarge)

(click image to enlarge)