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Protrader – September 2018 Market Wrap

//Protrader – September 2018 Market Wrap
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“Only thing we have to fear, is fear itself”
Franklin D Roosevelt 1932
XJO
Divergence Continues
Down 103 points for September

The Australian market was very disappointing, starting the month with 7 consecutive down days, and hitting a low of 6103, with the S&P ASX200 DOWN 2.6% at one stage, before solidifying, and closing the month at 6207.

Despite further Solid economic data such as a better than expected GDP, the market was unable to shake concerns about a potential International trade war.

Fear for fear’s sake seemed to have a hold over the entire market for the month, whether it was over emerging market contagion, falling commodity prices, weaker domestic housing data, or anticipated Royal Commission findings, the market simply focused on negative issues, resulting in at one stage, 8 straight days of losses.

To further highlight the argument of fear paralysis, inflationary pressure with the likelihood of an interest rate rise by years end didn’t translate into a financial sector rally.

In closing, and to sum up the mood around the Australian market: Spotsbet is accepting bets on Which of the big4 parent bank owned superannuation funds will pay out the most compensation in 2019.

KEY ECONOMIC DATA
GDP OF 3.4%, V’s Expected 2.7%
RIO /BHP Iron Ore shipments to China jumped by 10% in August.
DOW JONES IND AVG 25,952 – 26,459 : UP 507

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DJI 12 MONTH CHART

September saw the DOW basically continue from where it left off, with another 507 gain, on top of the previous 503 points August rally, hitting the highest close since January on the 19th, and following up by reaching consecutive record highs.

Psychologically the Dow is behaving almost in a polar opposite fashion to the Australian market, with the consistent and unrelenting phenomenal domestic data, compelling the market into “NAAHH, SO WHAT” Sphere.

  • Expansion of trade war with China. Nah, So what.
  • Failed trade talks with Canada. Nah, so what.
  • Italy failing to meet EU budget constraints. Nah, so what.
  • China referring US tariffs to W.T.O. Nah, so what.

It is important to understand that at some stage these amazing economic data results will create interest rates issues, which in turn will play a factor in suppressing this rally, however when one looks at the Dow chart and appreciates the magnitude of the best economic data in some cases, in 50 yrs, it is only natural to be overcome by a state of horripilation.

Key Developments in the Month of September

US Wage Growth- fastest in 9yrs
US Jobless Claims, the lowest level since Nov 1969
US Fed raised interest rates by .25%
US New home sales beat expectations
US Manufacturing Durable Goods beat market expectations
US Consumer Confidence Index reaches 18 yr high
US Manufacturing (ISM) HIT 14yr high
US Fed Reserve raised economic growth forecast from 2.8% to 3.1%

                        OIL STOCK UPDATES: Massive upside potential

 

 

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WTI Crude – Gained $3.38 from $69.87 – $73.25
The realisation that US sanctions are both drawing near, and that the US administration is sincere in implementing the sanctions has seen Oil rally further throughout the month of September, and on the cusp of breaking through the $75 barrier.

A threat of a supply-side price squeeze is the reality, with further Oil price increases, considering wold production is now at a record 100 mbpd basically full capacity, now expected.

Key Oil Price Influences

  • Iran fired missiles into Iraq, early September
  • Iran fired missiles into Syria, late September
  • Domestic Rioting season impacted upon Oil facilities in Basra, Iraq
  • South Korea agreed to Zero Iranian Oil imports
  • Hurricane Florence in the US impacted both demand & Supply
  • The biggest drop in US Stock prices since July
  • 5th weekly US crude Inventory levels, now lowest since Feb 2015
Resource ETF’s: QRE & OZR

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XJR, QRE & OZR Comparison
With signs of life creeping back into the commodities market, resources look set for a rebound going into next year. With that in mind, we take a look at two Resource ETF’s that track the XJR.
Both QRE and OZR are made up from stocks that make up the S&P/ASX 200 Resource Index, and companies that are involved in the following sectors. As one can see from the above comparison chart, regardless of which ETF you get into, they both track the XJR very closely.

Exploding The Myths Frank Watkins

QRE BetaShares S&P/ASX 200 Resources Sector ETF

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QRE: $6.34
Top 4 ASX Company holdings
BHP: 32.9%
WPL: 10.6%
RIO: 9.3%
S32: 5.5%
OZR: State Street Global Advisors, S&P/ASX200 Resouce Fund

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OZR:$11.30
Top 4 ASX Company Holdings
BHP: 33.10%
WPL: 10.73%
RIO: 9.32%
S32: 5.57%
If you would like to discuss this report or take advantage of future opportunities, please call us on (08) 9202 3900