THE GLOBAL CAPITALIST

Where do you want to be? Edition 11 9th January 2013

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THE GLOBAL CAPITALIST (TGC) IS A FREE MONTHLY FINANCIAL MARKETS NEWSLETTER, DESIGNED TO PROVIDE TECHNICAL ANALYSIS INSIGHT AND COMMENTARY TO HELP SHORT, MEDIUM AND LONG TERM INVESTORS IMPROVE THEIR INVESTMENT DECISION MAKING PROCESS, ENHANCE RETURNS & BETTER MANAGE RISK IN TODAYS CHALLENGING AND FAST MOVING GLOBAL CAPITAL MARKETS. THE INFORMATION CONTAINED IN THIS REPORT IS GENERAL INFORMATION ONLY AND SHOULD NOT BE CONSIDERED PERSONAL ADVICE. YOU SHOULD CONSULT YOUR ADVISER OR A UGC ADVISER BEFORE ACTING ON ANY OF THE INFORMATION CONTAINED IN THIS REPORT.

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BOTTOM LINE: The general technical picture for global stock markets is bullish for 2013, albeit some markets and stocks look a little stretched in the short term. The vast majority of major global stock markets appear to be placed bullishly above their medium term and long term moving averages and many commodities and risk on currencies look poised for a break to the upside if this hasnt already occurred. This all bodes well for a positive year, at least for the moment.

Chart 1 - S&P 500 Daily

Taking a longer term view of the US S&P 500 index, the US stock market looks poised to continue its move higher over the coming 12 months. The S&P 500 is trading nicely within the converging support and resistance lines. Should this price action continue to hold within these ranges, this all bodes well for a broader move upwards over the coming 12 months, albeit with some corrections along the way. I have extended the rising wedge pattern out to 2014. Should the wedge pattern continue to unfold as it is, this suggests that we should have relatively clear skies for close to 12 months and maybe longer. As technicians we need to be mindful that things can change, so always remain prudent. Dont believe for a moment that the solutions that repaired some of the damage of the Global Financial Crisis (GFC) have solved all our problems. Remember, its often the solutions to the previous crisis that create the next. Right now the index is rising nicely on the back of the temporary resolution to the fiscal cliff and this has the S&P 500 sitting nicely above its 10, 35, 50 and 200 day moving averages (DMA). While these conditions remain, we should remain upbeat. History has shown over time that you should never discount the USs ability to rally and repair from times of crisis. While I do not know the future, one should be mindful that there are some significant long terms trends that are starting to turn in the USs favour. These trends include the USs ability to innovate and create in areas such as information technology. The US is well placed to benefit from the most meaningful phase of the information technology revolution. It also appears that its foreign energy dependence will likely be solved within the next decade, thanks to new drilling and extraction technology developed for the Shale Gas formations deep beneath the earths surface. In fact these discoveries are so significant and so large that energy commodity prices such as natural gas and coal have plummeted as a result of these natural gas discoveries. Furthermore, US oil inventories are bursting at the seams. And if these two major trends weren't enough of an emerging long term tail wind, one must also consider that the housing bust appears all but over and the housing recovery now appears to be in its infant stages of recovery. While the world is a much different place today than it was before the GFC and no one can predict the future with any real degree of certainty, I do suspect that if you are a long term investor with a 10 to 15 year investment horizon, then the greatest risk to your wealth could be being too risk averse for too long.

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Chart 2 - S&P ASX 200 Daily

It appears that the Aussie stock market might also be emerging from its almost three year funk since the initial recovery from the Global Financial Crisis. There is now a clear breakout to the upside out of the 15 month trading range which commenced around August of 2011. The ASX 200 is now charging higher, albeit on very modest earnings revisions at this stage. The index is now placed nicely above all its medium and long term moving averages. For the moment, all technical signs are pointing to higher levels over the coming 12 months albeit a correction could be due in the short term.

Chart 3 - AUD/USD Daily Cross Rate

Probably much to the displeasure of the Reserve Bank of Australia, the Australia dollar is looking rather bullish against the US dollar at the moment. The AUD has been consolidating for the past 15 to 17 months against the US dollar but it now appears to be threatening an upside breakout, one that could take it as high as $1.15 or even $1.20 should it eventuate. Right now the AUD is breaking above the 10, 35 and 50 DMAs and the 200 DMA has just started to turn up. Generally speaking, Australian and US stocks, hard commodities and real estate should all benefit should this upside break out emerge.

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Chart 4 - USD/EURO Daily Cross Rate

The USD versus the Euro has broken down confirming the potential for further USD weakness. This provides further support for a broad rally in risk assets. Right now the USD versus the Euro has broken below the 10, 35, 50 and 200 DMAs. The possibility of fresh USD lows versus the Euro could be on the cards.

Chart 5 - EURO STOXX 50 Daily Futures

The Euro Stoxx 50 Daily Futures is also positioned in a rather bullish position, sitting nicely above the upward slopping 10, 35, 50 and 200 DMAs. Be sure to click here to look at the fundamental investment prospects for the European region over the next 12 months. Right now it would not hurt to start considering Europe as a place to deploy fresh capital. Many would be unaware that the Euro Stoxx 50, despite Europes troubles, has risen 30% since September 2011 and the trend looks anything but weak.

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Chart 6 - London FTSE 100 Daily

The FTSE 100 is also making a move to higher ground and at this stage I see little reason to suspect that the move higher wont continue for much of the next 12 months, albeit with corrections along the way. Remember, the US isnt the only country printing money in an effort to stimulate economic growth. Similar policies are being employed in Japan, Europe, and the UK. This should be medium term positive for risk assets and precious metals such as gold and silver.

Chart 7 - German DAX 30 Daily Futures

The German DAX 30 Futures has been on a tear since the middle of 2012 and this index is now threatening to break its preGlobal Financial Crisis high. While the DAX 30 appears to be getting a little frothy, based on the Relative Strength Index, momentum is certainly on its side. All things being equal, while it might be a bit risky buying in today given the recent move, a buy the dips strategy will more than likely prove fruitful over the coming 12 months but there are probably better value markets about.

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Chart 8 - Hong Kong Hang Seng Daily Futures

The Hang Seng has also found its mojo in recent times but it too looks a little frothy at these levels. The move higher has been strong with relatively little reprieve. A soft pull back in the short term would be a very healthy and welcomed development and would likely go a long way for further increases throughout 2013.

Chart 9 - Japanese Nikkie 225 Daily Futures

Could it be that Japans 20 something year bear market is over? Unfortunately the Nikkie has been prone to numerous false starts over the past 20 years and the odds of this one being just another false start are probably much higher than not. Nevertheless, to borrow a football analogy, the more losses you have in a row, the closer you are to your next win. One positive sign is that although the Nikkie made several good attempts at trying to retest the GFC lows over the past couple of years, it has been able to hold above them. There is clearly a floor under this market around 8,400 but a 22% move in two months is probably a little rich in the short term.

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Chart 10 - Light Crude Oil Daily Futures

Right now, US Light Crude Oil is locked in a battle over who is going to control the price action, the bulls or the bears? Right now US oil inventory is at an all time high on the back of surging US oil production. As a consequence of new hydraulic fracturing and horizontal drilling techniques, new and vast amounts of new shale hydrocarbon reserves can now be accessed. At the other end of the spectrum, middle east tension and unprecedented amounts of money printing continue to put upward pressure on the oil price. Given the pennant consolidation pattern that is forming, we might soon know who the victor is. Watch for the breakout.

Chart 11 - High Grade Copper Daily Futures

The copper price is also consolidating and a break out appears just around the corner. This could be a very good time to start looking around for copper producers. If you like the sector and believe that the break out will be one that is bullish, now is as good a time as any to do your home work on the producers you want to buy if the breakout to the upside comes.

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Chart 12 - Spot Gold Daily Futures

Right now it appears as though the gold price likely has further consolidation ahead of it before it musters a further move to the upside. There is very strong support for gold around USD$1,520. If it gets close to that level again, I believe that would be a good place to be accumulating more exposure. It appears that in the recent Federal Reserve minutes that some of the members are anticipating a withdrawal of QE at some stage throughout the year. For this to be a plausible outcome, which would be negative for gold, one would have to be a believer that the US government would stop running deficits, that the Treasury would stop issuing bonds to pay for the deficits and that the Fed would stop printing money used to buy the bonds the Treasury issues to keep interest rates low. Do you really believe that such a large scale change will take place this year?

Chart 13 - Spot Silver Daily Futures

Silver is basically following golds lead and the patterns are similar. Major support is at USD$27. If gold is likely to continue to correct for the time being, its hard to see silver diverge from that.

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United Global Capital Pty Ltd, Level 39, 385 Bourke Street, Melbourne VIC Australia 3000 Corporate Authorised representative (416388) of Avestra Capital Pty Ltd (AFSL 292464)

Phone: 61 3 8459 2121 | Fax: 61 3 8459 2121 | Website: www.ugc.net.au | Email: info@ugc.net.a

Where do you want to be?