February update

This result holds against the returns for February as I have outlined in previous discussions. That being said, the month isn't over yet and much can occur in a short time, especially if we see market falls.

My concern for the Aussie market still lies in the fact that we are heavily diverging from the US indexes as they plough ahead, and we are trapped in a range still below our April 2010 highs.

Markets can hold in ranges for some time until catalysts catapult them one way or another. Much of the commentary out of the US is that the market there has overshot its fundamentals and is technically in an overbought position.

Good old speculation

That concept is a great hindsight vehicle as we can see markets trade in overbought regions for a long period and fundamental values can take a long time to rebalance.

So what we are seeing in the US is good old speculation and an attempt to ride a wave of optimism.

The question is how long can it last? Will the catalyst drive our market higher or lower?

Chart one and two show the relative picture of the US S&P 500 Aussie SPI200 markets; both benchmarks in measuring the value of a larger number of shares in one basket.

The US market looks healthy in its trajectory; the Aussie market much flatter. This of course is affected by markets in our region and trading partners like China, Japan and India.

When looking at their stock markets their patterns and pictures are also not as bullish as the US story. The Shanghai index is climbing back after dropping away in November 2010. Japan is flat and the Indian market attempted new highs in November 2010, and formed a technical double top pattern. It has since fallen around 15%.

Where to from here?

So when compared to our partners in the region, we could suggest that their story and ours are playing out in a similar way. It's the US that stands alone in this current drive, with Europe holding in there.

The challenge is now what to do with this information or analysis?

For me, I think it's a case of seeing little value in getting into the US market at current levels as a correction of even a small amount is technically needed to refuel this market.

If a correction of larger values occurs, due to its run ahead the US is likely to be hit harder with the other regions most likely correcting by smaller amounts.

This could signal the time for value returning to the market and therefore buying opportunities are better placed.

What about commodities?

As a trader I see opportunities in both directions of the market, but my investors cap says that a pullback would represent better value than where we are now.

The problem is markets often don't give us the perfect environment to enter based on our own comfort levels. The commodities outcome will be huge for the Aussie market.

Commodities pricing is gaining strength, but a return to a stronger US dollar will likely affect those gains in the shift in how the commodities are priced.

Overall, we have interesting times in the market as always. I also have conceded that February could end neutral or even bearish. If you have accrued good profits in February to date, be smart and don't let your profits evaporate if things turn south

Good Trading!