ASX CLOSE: Market continues to rally

Thursday 17th September 2009

Across the Asian region, markets were all higher in Thursday trade as commodity prices and stocks surged following strong economic data from the US overnight. The Nikkei 225 closed up 1.7% while the Kospi finished the day 0.7% higher. Hong Kong and the Shanghai Composite are still trading, up 1.8% and 2%, respectively.

The combined affect of Ben Bernanke's comments two days ago and the mounting evidence that the economic recovery is gathering steam have sent global sentiment levels skyrocketing.

In Australia, the ASX 200 finished 1.4% higher at 4714.9 after trading up to 4749.7 earlier as traders continued to pour into the market, seemingly oblivious to how far the market has already rallied. The industrials, materials, financials and energy sectors were the prime movers as investors chased the most leveraged exposure to the economic recovery.

Over the last 60 days, the financials sector has outperformed the materials and energy sectors by a significant amount. Now we're starting to see evidence of some rotation back toward the more cyclical resource stocks.

Looking at a chart of the materials index, it has broken out of a bullish ascending triangle pattern yesterday and continued higher today. Technically, it looks strong with upside projections pointing toward the 13,200 region.

With legendary phrases such as ‘be fearful when others are greedy and greedy when others are fearful' in mind, could we perhaps be seeing the final leg of this rally where well versed traders distribute stock to the ‘unsophisticated' retail punter?

Probably not as we've continued to see the professionals close the market over the last few days, both locally and abroad. However, it's certainly something to keep in the back of one's mind when markets become overly optimistic.

That the VIX is still trading at near year lows, is confirmation that investors still see this rally as having legs. A sudden spike in the VIX will be an obvious sign of a change in sentiment as it will mean investors feel the need to purchase down side protection

This Friday's quadruple witching could potentially be behind this week's surge in stocks. With many investors having positioned themselves for falls over this historically weak period by taking short positions in stock, index and options contracts, many have undoubtedly been forced to cover these positions as markets have moved higher. Given the week-long short squeeze Friday's witching day may turn out to be a non-event.

Turning our attention to the market and all sectors finished in positive territory today.

The industrials sector was dominated by gains in Asciano (5.2%), Macquarie Infrastructure Group (3.9%), Macquarie Airports (3.9%) and Brambles (3%).

Macquarie Airports this morning announced it had sold 35.5% of its stake in Bristol airport and purchased a further 3.9% of Copenhagen airport. Goldman Sachs JBWere believes this is a positive sign that Macquarie Airports is redeploying its capital into what we view as a higher-quality asset. Also, the proceeds of approximately $120 million will provide further financial flexibility.

The financials sector followed strong overnight leads with the S&P financials sector the best performer in the US, up 3.4% and the KBW Bank Index higher by 4%. Locally, Macquarie Group (4.5%) and Bendigo Bank (3.3%) were the best performers. The big four banks were all higher, up between 0.1% and 1.8%, with Commonwealth Bank of Australia the best performer. ANZ bought up the rear.

The materials space was buoyed by strong overnight leads with base metals all stronger. Nickel rose 1.1%, Aluminium 3.6%, Zinc 4.1% and Copper 2.8%. Alumina (7%), Rio Tinto (2.2%), Amcor (1.9%) and BHP Billiton (1.5%) were the main gainers.

Elsewhere, the energy sector added significant points despite pulling back late. Paladin Energy (3.6%), Caltex Australia (2.9%) and Woodside Petroleum (1.5%) were the top performers. Woodside Petroleum was up as much as 3.8% after US based Anadarko Petroleum said a consortium including Woodside discovered oil off the coast of Sierra Leone in Africa. Operator Anadarko has a 40% stake in the venture while Woodside Petroleum has 25%. The consortium's Venus well hit more than 45 feet of hydrocarbon pay from its first deepwater test.

Prices are in AUD unless otherwise stated.
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