2014 australian corporate reporting season buy and sells

Invast Insights

Week Commencing February 17, 2014

www.invast.com.au | 1800 468 278

This week we look at the following topics:

1.0 Reporting season buy & sells

2.0 Technical outlook & key level updates

3.0 Book review – The Demographic Cliff


1.0 Reporting season buy & sells

Australian corporate reporting season ramps up over the next two weeks and

below are some key costs, what they are expected to report in terms of

earnings and our view on whether they are a buy or sell at current levels. Our

views on these stocks are general and we will follow on with a more in-depth

analysis following reporting season sometime in May. The chart below is just

to give you our expectations and our thoughts on each key stock subject to

the numbers printing out.


2.0 Technical outlook & key level updates

Plenty of market moving events scheduled next week, we like to focus on

some instruments that will be highly impacted by these announcements.

Bank of England, Bank of Japan, Federal Open Market Committee and Reserve

Bank of Australia will release their monetary policy meeting minutes and as

such we want to focus on the Australian Dollar, Japanese Yen, Sterling and the

US Dollar.


AUD/USD

Following lower than expected employment numbers, with Australia

shedding 3.7 thousand jobs last month and unemployment rising up to 6%.

Gains were wiped out and potential to stage a trend reversal slips away.

The key resistance level at 0.9025 we put out over several videos in the past

week remains strong, as noted on the Daily chart there was no close above

0.9025 as of yet. With price currently within the Ichimoku cloud attempting a

break above, any weakness in the Australian economy could trigger further

selling in the Australian dollar.

Downside support is currently located at 0.8950 and a daily close below this

level could signal a down-trend continuation. We remain bearish on the

medium term outlook of the Australian dollar and expects a potential retest

of 0.8825 and 0.8700 in the coming days.


Figure 1 AUD/USD Daily Chart, source: Invast cTrader


Key event to watch for this week is the HSBC Chinese Flash PMI numbers.

Previous month result was 49.5 a downward revision from the actual 49.6

release. Market consensus is not out yet but it’s expected to be around 50.0.

Any numbers below 49.00 could trigger a selloff in AUD/USD as the currency

is reliant on Chinese data

GBP/USD

Impressive recovery from the UK as key economic data continues to improve.

One of the biggest concern in the past month has been the rapid drop in

unemployment rate. Bank of England upgraded their GDP forecast to 3.4%

from the previous 2.8% and lowers their unemployment outlook. While there

is a potential for inflation to go up, Bank of England is “not going to take risks”

with the current recovery.

GBP/USD continues to push higher beyond the key 1.6600 level and posted a

3 year high at 1.6673. While we expect a little pullback to occur this week


week, ultimately the longer term view remains to the upside. As such our

strategy is not to sell the correction but rather wait for the correction to be

over before attempting any further buying in GBP/USD.

Key support for the pair is currently located at the key 1.6600, 1.6550 and

1.6500. While a correction to these support level is preferable, there are two

very high impact news from the UK next week. The first is UK CPI on Tuesday –

while the consensus is not out a print higher than 2.1% will trigger a rally in

Cable. The second is UK’s unemployment rate, while it is not the only indicator

linked to BOE interest rate guidance another drop in unemployment rate will

also trigger a rally in Cable. With that in mind there is a slight chance

correction could be shallow.

Key resistances to the upside are located at 1.6725 where 127.2% fibonacci

extension is located, followed by 1.6850 where 161.8% fibonacci is located. Our

view on GBP/USD remains to the upside and we will update through our blog

once an entry is probable.


Figure 2 GBP/USD Daily Chart, Source: Invast cTrader


USD/JPY

Disappointing data from the US continues to weigh on the greenback. While

FOMC will likely continue to taper, it will do so in steps and will accommodate

significant economic changes. FOMC will release their meeting minutes on

Thursday, a focus for most traders as they look for answer to why FOMC

continues to taper QE in light of disappointing Job numbers.

On the technical front USD/JPY only managed a recovery to 38.2% fibonacci

before sharply rejected. The key resistance at 38.2% is located at 102.50 and

the immediate support for the pair can be found at 101.50 where the

trendline support is located followed by 100.75 key support.

While we previously call for an end to the drop in USD/JPY at 100.75, recent

data from the US force us to reconsider. As the pair is no back trading below

the Ichimoku Cloud, any close below 101.50 key level will likely trigger further


selling towards 100.75 and potentially 100.00. This is also the 61.8% Fibonacci

retracement from the major rally last year.


Figure 3 USD/JPY Daily Chart, Source: Invast cTrader


3.0 Book review – The Demographic Cliff

This book was actually recommended by one

of our own staff members who read it over

the holiday period. The conversation around

the office was pondering on where the

Australian economy is set to go over the next

few years and the staff member suggested

reading The Demographic Cliff which thinks

Australia is one of the best positioned

countries to withstand the challenges that are

set to come. Author Harry Dent shows why

we’re facing a “great deflation” after five years

of desperate stimulus—and what to do about

it. We don’t necessarily agree with all the

conclusions that Dent makes in this book but

his analysis and ideas are nevertheless

interesting and worth pondering on.


Demographics is a very interesting area of study and not something we have

written about in Invast Insights to date, but we plan to make this a more

regular theme in the future. Throughout his long career as an economic

forecaster, Dent has relied on his not-so-secret weapon: demographics. Dent

studies the predictable things people do as they age is the ultimate tool for

understanding trends. For instance, Dent can tell a client exactly when people

will spend the most on potato chips. He also explains why our economy has

risen and fallen with the peak spending of generations and why we now face

a growing demographic cliff with the accelerating retirement of the Baby

Boomers around the world. Dent predicted the impact of the Boomers hitting

their highest growth in spending in the 1990s, when most economists saw the

United States declining.

His future predictions might not work out as well. For example Dent suggests

the Dow Jones might fall to around 5,800 by 2015 which to us sounds absurd.

He also suggests families should wait to buy real estate in areas where home

prices (more so those in the United States) have gone back to where the


bubble started in early 2000. We think these forecasts will be wrong, but the

most interesting part of the book is the actually focus on demographics

rather than market predictions and on that level we think Dent has some very

interesting things to say. For around US$12 on Amazon.com we think it’s

worth adding to your buy list.

Visit our site to learn more about using Ctrader in currency trades.

http://www.amazon.com/The-Demographic-Cliff-Deflation-2014-2019/dp/1480580678



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7.0 Disclaimer

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2014 australian corporate reporting season buy and sells

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