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

• Overview
  Interesting times. More...
• Newcrest Mining (NCM)
  Volatility within a range. More...
• Aquila Resources (AQA)
  Break of support. More...
• Aquarius Platinum (AQP)
  Weak. More...
• WorleyParsons (WOR)
  Time to take profits? More...
• Emeco (EHL)
  High risk. More...
• Westfield Group (WDC)
  Lack of positive action. 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 US equity market broke above resistance last week, completing what was described in the last report as an 'inverse head and shoulders continuation' pattern. This suggests that higher levels are possible over the next few weeks.

The ratio of US T-Bonds/S&P500 has still not broken to the downside, and the VIX has not broken support so there is some cause for concern, but I think that price action in the broader market indices has more relevance at this stage. That said, I would like to see the US T-Bond/S&P ratio break to the downside to confirm the recent topside break in the equity market.

Unfortunately, the Australian market did not follow the positive lead from Wall Street. Resistance is still in place and while the S&P 500 posted a 2% gain last week, the All Ords fell by almost the same amount, held back, as expected, by weakness in the resource side of the market. The Materials and Resources indices declined by 3.5%, with the Small Resources the worst performing sector, down by 5%.

The Banks were relatively flat; with small gains in Commonwealth Bank (CBA), ANZ Bank (ANZ) and National Australia Bank (NAB) offset by a 2.5% fall in Westpac (WBC). I continue to believe that this sector offers more upside potential than the Resource side of the market. The ratio of the Banks to the Materials has just broken out of the base formation that has been developing since late last year, and unless this is reversed quickly, which is not indicated, then further outperformance is expected.

Obviously last week was not a good one for the domestic market.

Not only was it one of the worst global performers, but there was some disappointing behaviour in individual stocks. Many were deflected from key resistance levels, whilst other stocks, which had broken key barriers a week or two prior, pulled back, closing below their breakout points. Examples include Amcor (AMC), Orica (ORI) and UGL Limited (UGL). This has threatened the positive outlook for these stocks and it is now a case of sitting on the sidelines, waiting for some clearer signals.

As it was the strength in the Australian dollar that caused Friday's sharp fall in many stocks, we should ask the question - how high can the AUD go?

That's a difficult one.

The AUD has been rising against all currencies, with the notable exception of the Swiss franc, so it is not just a matter of US dollar weakness. There is not a lot to indicate that a reversal is imminent, but the AUD is now testing a minor level of resistance, against the Yen and the Pound, so this is worth watching. But in reality there is no strong evidence to suggest that the rally is in its final stages.