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

Reviewed this week

High and low-risk opportunities

• Overview
  Identifying low and high-risk opportunities. More...
• Independence Group (IGO)
  High risk. More...
• Cardno (CDD)
  Take profits. More...
• Onesteel (OST)
  Constructive action. More...
• Stockland Group (SGP)
  Completing the corrective phase. More...
• Woolworths (WOW)
  To underperform its rival. More...
• Wesfarmers (WES)
  A clear break of resistance in relative-performance terms. 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

The smaller Asian stockmarkets continued their declines last week, while the US and larger European markets were the best performers. This weakness in the smaller, or emerging, markets has been unfolding since late last year and can continue.

India and Brazil peaked in early November, and have since declined by 17% and 12% respectively. Now, it appears as though other recent high flyers such as Taiwan, Argentina, Korea, Singapore, Thailand, Indonesia, and Malaysia are ready to follow suit. This potential weakness was noted late last year and I had been of the opinion that this could represent a bout of risk aversion, which would have negative implications for global equity markets. But, to date, this has not been the case.

Time will tell if these markets are giving an early warning. I believe that they could be, but the US, despite being overbought and due for a pullback, continues to push higher. The Nasdaq 100 index pushed beyond its 2007 peak in early January; the Nasdaq Composite is currently testing the 2007 high. You can't argue with the trend at this stage.

But we should be keeping a close eye on the VIX. The index was highlighted two weeks ago and the long-term support noted. It is still holding above that support level, so still warning of increasing risk in US equities. But, if the April and December 2010 lows at approximately 15 are taken out then there is the potential for the equity market to move significantly higher.

(click image to enlarge)

In Australia, the All Ords was relatively flat last week; strength in the Banks (+3.5%) was offset by a flat performance in the Resources and weakness in Retailing (-5.6%), Consumer Durables (-3.9%) and Diversified Financials (-2%).

The All Ords is struggling to push beyond the resistance of the January and April 2010 highs (4984 - 5049); this is unlikely to be overcome until the Banks and the Resources begin to move in tandem to the upside. If that can occur, in concert with the VIX moving below support, then we could see some exciting moves. Until that happens, I continue to believe that the Banks offer more potential than the Resources.