It’s a massive week for the Equity and Currency markets with the US Mid-term Elections taking place yesterday, the Fed Meeting wrapping up its 2-day meeting today and a US Non-Farm payroll figure due out later in the week. After a massive 13.5% run-up in the S&P 500 and a 12% run-up in the DOW since September 1st the markets have paused somewhat for the last couple of weeks in anticipation of what the outcome of this week would be. The big question now is as the various pieces of news start to unveil themselves how will the markets react from here. Will QE2 be enough for the DOW to break decisively though 11,200 and continue higher or will we see a “Buy the Rumour, Sell the News” reaction? In this post I take a quick look at what’s involved.

Obama Loses Control Of The House Of Representatives, Clings onto Senate

First up the mid-term elections in the US. At this point we already know the US public have given President Obama the kicking many expected was coming his way, although with the Democrats managing to cling to a majority (albeit a very slim one) in the Senate perhaps it wasn’t as bad an outcome for Obama as it might have been. He has however lost control of the House of Representatives which is likely to make the final 2 years of his Presidency very difficult as he faces a hostile Congress who are likely to make the pushing through of the Obama agenda a much more difficult prospect.

Looking at the Election results themselves, of the 435 seats up for grabs in the House of Representatives the Democrats went from having a 257 to 178 comfortable majority to how facing a 182 to 238 minority with about 15 seats still up for grabs at the time of writing, a significant drubbing for the “Yes We Can” Man. In the Senate things fared a little better, prior to the elections the Democrats held 59 of the 100 seats, post Election they sit on 51 seats with the Republicans with 46 seats and 3 seats still to be decided as I write this piece.

So what will the Republicans seizing control of the House of Representatives mean for the markets, which is all we really care about here at SpreadTrader.ie! Well many feel it should be a positive thing with the Republicans seen as being more pro-business. This is likely to lead to less aggressive taxing and more business-friendly policies. They are likely to challenge Obama’s focus on Health Care Reform which many feel is one of the main reasons for this mid-term backlash from the US public who would rather see him focus on creating jobs as the US unemployment figure continues to hover near 10%. From a sector perspective most analysts expect Energy and Defensive stocks to do well with the Republicans having a larger say on legislation going forward. Overall though I think these election results were very much anticipated by the markets and what’s likely to have a more significant influence is what the Fed announces in relation to further Quantitative Easing (QE2) measures after its 2-day meeting wraps up today.

QE2 Will Be The Real Market Driver

We can see from the Daily DOW chart below that for the last 2 weeks the markets have been consolidating close to the 2010 highs of 11,200 after it’s massive 6 week run up from 10,000 at the start of September. It may seem obvious but from here we are going to breakout one way or the other. And the direction of that breakout will really come down to the measures the Fed announces after its meeting. The market is expecting them to announcement the buy up of more US Treasury Bonds, the only question is the extend of the buying. Anything less than $500 billion in new purchases could disappoint the markets resulting in a significant sell-off. Should they come out with a headline figure like $1 trillion however, well that could be exactly what this market needs to breakout above 11,200 and push on towards 12,000 mark.

DOW Jones - Which Way Will It Breakout (Click twice to Enlarge)

Rather than second guess the outcome of all this I’ve been lightening up on my long positions over the last few days and effectively taking a seat on the sidelines to wait and see what happens. Personally I’m thinking after such a run-up to where we are that we could well see a “Sell the News” reaction. That said with so many traders positioned to the short side any surprise in the extent of the QE2 measures announced by the Fed later today could be enough to see a breakout to the upside as a result of a bout of short-covering…All will be revealed in the next couple of days I guess!

Until next time,
Happy Trading,
SpreadTrader.ie : -)

I’ve been busy these last few weeks with work, travelling and some holidays thrown in aswell. All of which has meant I haven’t had any spare time to write new posts. It’s been a busy time on the news front during this period and so I thought I’d get back into the swing of things with a look at a few stories which made the headlines that caught my eye. I’m going to split this into two parts, today taking a look at some of the Irish companies making the news recently with the release of their half-yearly resultsand later in the week covering some of the big stories from the US including Intel’s recent buying spree, HP’s CEO stepping down, BP finally plugging it’s oil spill in the Gulf of Mexico and BHP Billiton’s hostile takeover bid for Potash.

Poor Results From Heavyweight CRH Drags ISEQ Down

But first on the home front there has been lots of results and trading updates making the news over the last few weeks with mixed fortunes for the companies involved. A couple of weeks ago CRH announced disappointing half yearly results which saw it’s shares slump 16% on the day, dragging the ISEQ down almost 6% in the process.  Pre-tax profits of just €25m were down 77% on the €108m achieved during the first 6 months of 2009. The main reasons given for the slump in revenues and profits appear to be due to worst than expected performance at the company’s American Materials division as spending on infrastructure in the US slows (perhaps an indication that the US Stimulus package is starting to run out of steam) and bad weather in Europein the earlier part of the year hitting demand for CRH’s products. All in all the results made disappointing reading from the ISEQ’s heavyweight company and former star performer. It appears to be the across the board revenue declines which has spooked investors the most with each of CRH’s Materials, Distribution and Products divisions in Europe and the US all post revenue declines of between 6 and 10%.

From a technical perspectiveCRH’s chart looks a broken one, the 16% fall to €11.50 on the half yearly results saw it hit lows not seeing in many years, even breaking below last March’s  €12.50 low. While the stock has staged a decent recovery since then, rising over 16% from it’s lows to pretty much pretty much wipe out that big sell-off on August 24th, it is now coming up to test an area of significant resistanceonce again. We can see from the chart below that CRH’s recovery was stopped in it’s tracks last Monday and Tuesday when the market sold off as soon as the share price had rallied back up to the breakdown level at just under $14.00. The stock looks set to make another attempt to break above this resistance level this week which if rejected again could lead to another sell-off back towards the August lows.

CRH Daily Chart - (Double Click to Enlarge)

CRH is clearly in a down-trend. Since making it’s 12 month high of €22.60 back in April we can see that the stock has made a series of lower highs and lower lows over the last 6 months, so until we see a reversal of that trend any long positions should be tightly managed. That said I don’t think I would rush out and short it either because in maintaining their interim dividend at 18.5 centthe company has given an indication that it may not cut it’s full year dividend this year. If that follows through and CRH’s full year dividend comes in at, or even close to, last years 62.5 cent then at current levels the stock is yielding around 5%. That should be enough to act as some sort of support for the share price, particularly as pension funds will look for high yielding dividend stocks for their portfolios in these volatile times.

Indo’s Results Benefit From Improvement In Advertising

There was better news for Independent News and Media with their half yearly results up 40% on the same 6 months in 2009. The group made pre-tax profits of €53.3m on revenues of €656m driven by a gradual improvement in advertising revenues and one of gains achieved by the sale of the London Independent and it’s stake in Indian publisher JPL. While no interim dividend will be paid CEO Gavin O’Reilly announced that the INM is targeting full-year profits in line with market expectations. While these results are certainly encouraging coming on the back of a few years of very challenging trading it should be noted that INM still has net debt of close to €1billion. The disposal of JPL allowed €32m to be repaid off this debt but on-going cash generation will be vital for the company if financing of this debt is to be maintained.

Independent News & Media Daily Chart (Double Click to Enlarge)

Technically that INM chart is a rather unusual one due to the 7-1 reverse split which took place last June. That share consolidation is clearly evident on the chart where the price jumped from a 10-15 cent range to the 60-90 cent range it has been trading in since the reverse split. The market has reacted well to the results with the share-price up about 10% since they were announced on August 27th. A difficult one to trade due to the impact the split has had on the chart I think any long positions need to be accompanied with a stop just below 60 cent. Either way INM looks to be a slow burner and it’s one that is unlikely to lead to big profits overnight but if you feel the fundamentals will remain strong and have the patience to wait it out then a position on the December contract has the potential to offer a decent return.

Tullow Continues To Led The Way

Finally to finish off today’s post lets take a look at Tullow Oil which continues to be the star performer, announcing half yearly results which saw pre-tax profits up a massive 150%over the same 6 month period in 2009! Profits of $131m on revenues of $486m were driven by strong oil prices (averaging $78 a barrel) over the period. Looking forward performance should continue to improve for Tullow with production from it’s flagship Jubilee field in Ghana (one of the largest new oil discoveries in the world with an estimated 1.8 billion barrels of oil) expected to begin by the end of the year. However the ongoing dispute between the Ugandan government and Heritage(Tullow’s former partner) over unpaid capital gains tax is holding up the development of it’s Ugandan oil fields which Tullow plans to develop with France’s Total and China’s National Offshore Oil Corp and until there is a resolution to this dispute there is likely to be some overhang on Tullow’s stock.

Tullow Oil Daily Chart (Double Click to Enlarge)

Looking at the chart, Tullow will need to clear resistance at 1325p in order to continue on to new highs but given the momentum behind this play (up from 400p in late 2008) that seems very likely. We can also see from the chart above that the MACD indicator looks set to turn positive in the coming days which would be another bullish indicator.

Right that wraps up this post. Part 2 later in the week will see us move State-side to review some of the news moving stocks over there.

Until next time,
Happy Trading,
SpreadTrader.ie : -)

Work commitments have hit again and prevented me from posting as regularly as I had hoped over the last month but at last I’ve got around to finishing off my look at Q1 earnings and how some of the leading names in tech have reacted in light of what have, for most, been excellent results. I’ll finish up this today with the look at Google promised back in Part 2 last time round. And about time too, if I had left it much longer it would be Google’s Q2 results we’d be reviewing! For those the didn’t get to read them this series of posts began with Part 1 and Part 2 which you can read here and here.

Google Beats The Street But Shares Sell Off

After the close on April 15th Google announced it’s Q1 results and like most S&P companies it too beat the Street’s estimates. Analyst consensus was for revenues of $4.93 billion, profits of $2.7 billion and EPS of $6.56, Google came in with revenues of $5.06, profits of $2.78 billion and EPS of $6.76. So yes while it beat estimates it certainly wasn’t a beat in the same league of Apple, Intel or many other of the leading tech companies that reported excellent Q1 results. The market’s reaction was swift and severe, with the stock having run up about $40 (or 7%) to just under $600 in the days leading up the results in expectation of a blow-out quarter, the day after the results all those gains were wiped out, and some more, with the stock tanking 7.5% or $45 in a single day’s trading. And the sell-off didn’t end there, over the next 3 weeks Google sold off sharply to a low of $464 on May 6th - a drop of over 20% from the pre-results price. While many might discount this May 6th low as part of the “DOW’s Flash Crash” that day it did set a level that the stock was to revisit twice in the following couple of weeks. And $464 now looks a significant level which if Google can’t hold from here then further downside can be expected.

Google Searching For New Sources Of Revenue Growth

So what’s up with Google, excellent results which saw it throw off another $2.35 billion in free cashflow, that’s an annualised rate of close to $10 billion in free cash per year (it currently has $27 billion of cash on it’s balance sheet), yet it’s share price falls over 20% over the following month. The issue is it’s valuation, at the time it’s results Google, at close to $600 per share, was trading at a PE of 27. The recent sell-off has seen that reduce to a PE of 22 but that’s still very pricey and unless Google can continue to deliver high double digit growth year on year then the market is going to quickly bring that PE back to mid to high teens in line with a Cisco, Intel or to a lesser degree a Microsoft or HP. Generating lots of free cash each quarter is great but what the market is really interested in is how are you going to use it to drive future revenue and profit growth, especially if you are a company that doesn’t pay a dividend. Google’s most recent quarter showed revenue grow 23% over Q1 2009, that’s what the market wants to see, the question is how  does Google plan on driving another 20% plus growth come Q1 2011?

The question of where continued future revenue growth becomes even more important when many analysts believe it has saturated it’s existing online search markets and it has recently decided to all but pull out of the China – the world’s largest and fastest growing economy. While Google’s decision to pull out of China earlier this year on the grounds that it didn’t agree with the Chinese government censoring it’s results may have gained many supporters on moral grounds including senior members of the US Government, it did little to win over analysts and investors. Most saw this as an own goal by Google, a case of it taking on a battle it could never win and one that ultimately was going to cost the company billions in potential future profits. The winner out of Google’s decision was Chinese search engine Baidu which was seen as now having a free reign to mop up the ever growing Chinese online search market. It already has a 54% market share in China with Google lagging behind it with only 18% but Google had been expected to make inroads into Baidu’s dominant position. Not anymore, one look at the Baidu chart below shows us all we need to know, since Google first announced that it might pull out of China on January 12th Baidu has almost doubled in price from $39 a share to $73 today. Google on the other hand has fallen almost 20% from $590 a share to $483 today.

Baidu Share Price Doubles Since January (Click to Enlarge)

Will Mobil Search Be The Catalyst Google Needs?

As it searches (excuse the pun!) for new sources of revenue growth the mobile web and in particular the world of the smartphone seems to be high on Google’s radar. It recently got permission from the US Federal Trade Commission to complete it’s purchase of Admob, the mobile ad platform, for $750 million. Given the delay in the decision coming from the FTC many thought they may be about to block the purchase which would have been a massive blow to Google’s plans. While still in it’s early days it is expected the mobile advertising space is going to be the next big battle ground for the world’s leading players in online search, Google, Microsoft and Yahoo. And now all three have to compete directly with Apple in this space also who, with the recent announcement of it’s iAd platform as part of it’s iPhone 4 OS release, has pitched itself into a direct battle with Google. It’s no wonder Google CEO Eric Schmidt stepped down as a director from Apple’s board last August.

Closely linked to it’s efforts to gain a larger piece of the smartphone tidal wave Google also announced the launch of it’s own smartphone in early January, the Nexus One. In an effort to differentiate itself from it’s rivals is an unlocked phone and only available for purchase, initially at least, through a new Google e-Commerce website. While independent reviews of Nexus One have been largely positive to-date it appears not to have made a massive impact as regards sales (during it’s recent Q1 results Google management said the new product was profitable and that they were very happy with the uptake so far but refused to give specifics on numbers of units sold). Given the competition in this market it’s hard to see how the Nexus One is going to be Google’s next big revenue generator. Perhaps the real story here is the rise of the Android operating system, which is now powering 34 mobile phone devices. Android is now the world’s 2nd most popular smartphone operating system after recently ousting the iPhone OS and is behind only Research In Motion’s OS, the makers of the Blackberry smartphone.

So What Next For Google’s Shareprice?

So to wrap things up on Google, what’s the chart telling us. Well if we take a look at the 12 month daily chart below it’s clear Google is a broken stock. After 12 months of an almost uninterrupted uptrend during 2009 when the stock went from $280 a share in January to $630 a share in December since then the trend has clearly reversed and the stock is now languishing below well it’s 200 day moving average.

Google Daily Chart (Click twice to Enlarge)

Google will always be a volatile stock with the potential for big moves up or down on any given day but short term until it re-establishes an uptrend and gets back above it’s 200 DMA it might be best to look for alternative trades in the current market. There are many other tech stocks out there which do offer the potential for continued revenue and profit growth at rates that the market is looking for. For me, while I admire the company and use it’s search engine everyday, there are just too many question marks hanging over Google right now, particularly in relation to China, which need to be answered before I’d be ready to go long again. If you are desperate for a Google trade then perhaps going long on a re-test of $464 with a tight stop just below this level might offer the potential for a quick rebound back to $500. Alternatively, as mentioned above, if this $464 level fails to hold then going short might be your best bet. Either way be nibble in moving your stops with this one or use a trailing stop where possible.

Until next time,
Happy Trading,
SpreadTrader.ie : -)

I’ve been side-tracked on a few other things for the last few weeks so only getting around to posting the 2nd half of my look at how earnings season is going now. Click here to catch up on the first half from a couple of weeks ago. Since then we have had some fairly wild moves in the markets mostly driven by mad goings on in Greece. We’ve seen the Euro fall 6.5% against the dollar on the back of contagion fears that the Greek debt crisis could spread to other European countries, a massive €750 billion bailout agreed, crude oil has fallen $13.00 a barrel on the back of a strengthening dollar and fears of a slowdown in Chinese economic growth, there was last weeks “flash crash” when the DOW dropped 1,000 points in a few minutes before recovering 500 pts and Gold continued to push higher and higher, eventually hitting new all time highs on Tuesday. And though all this excitement the Q1 results continued to trickle in with the vast majority continuing to beat the Streets expectations. Exciting times indeed!

I will look at Greece, Gold and the DOW “flash crash” in future posts but first lets get back to looking at a few of the more popular tech names that reported in the last few weeks and seeing what they had to say for themselves and, more importantly, how has the market reacted to their results. I covered Apple in Part 1 and promised a look at Intel and Google in Part 2. I’m going to break that promise and stretch this one out a bit further by looking at Intel today and Google the next day.

A Trade That Didn’t Work Out!

Before I get into the specifics of Intel’s result I thought I’d share a recent trade that didn’t quite go to plan. When I started Part 1 of this article I had done some initial research on Intel and I remember at the time thinking the chart was setting up really nice for a good entry price. This was back on 29th April, 2 weeks earlier the company had reported amazing earnings that smashed analyst estimates (revenues of $10.3 billion, analyst were expecting $9.8 billion, EPS of 43 cents a share, analysts were expecting 38 cents a share). Profits of $2.4 billion were 288% higher than the $647m reported in Q1 2009! No surprise then that the stock gapped up over 3% on these result and pushed another 3% higher over the next few days before it started to fall back a bit. Having missed the initial jump up I was patiently waiting for another opportunity to go long and felt I had it on April 29th when after a big pull-back the day before Intel closed back above it’s 20 day moving average which had acted as support since early February (see the chart below which shows Intel on 29th April). I also liked how, despite the previous days sell-off, the stock had still managed to close above the gap-up which came the day after the results were announced. I saw this as an ideal opportunity to get long and watch Intel push on to new highs for the year.

Intel Chart From April 29th (Click twice to Enlarge)

Of course in trading things don’t always work to plan and a 3% sell-off the next day saw me promptly stopped out of my position (see 2nd chart below which shows Intel yesterday). Thankfully a tight stop 50 pts below meant my loss was a relatively small one. While never happy with a losing trade on reflection I am still ok with the trade I put on, there was a lot going for it and I had properly defined my risk. Given a similar setup today on Intel or some other stock I was bullish on I’d probably put the same trade on again. Since then the stock first sold off dramatically, all the way down to $19 during last Thursday crash, albeit only for a few minutes, before recovering most of it’s losses to now stand at $22.50, just about where it was before it announced it’s Q1 results.

Intel Chart From May 13th (Click twice to Enlarge)

New Product Cycle And Increased Corporate Spending Is Good News For Intel

So what to do now. Well longer term I’m bullish on Intel. There are a lot of  factors driving the most recent set of results which I’d expect to see continue for the rest of this year and into next including:

• Stronger corporate spending driven by the need for hardware and software upgrades after a few yrs of limited spending as the recession forced companies to cut back all non-essential spending.
• Stronger consumer spending on laptops driven by the release of Windows 7
• The move towards cloud computing is creating a new area of demand
• A new wave of netbooks, tablet PCs and mobile devices are furthering the demand for Intel’s chips.

Trading at a forward P/E of approx 11 and with almost $3 a share in cash on it’s balance sheet Intel is not expensive. With full year EPS of close to $2.00 a share expected a move towards a valuation of 15 times earnings could see Intel hit $30 within the next 12 months, a 33% rise from current levels. Shorter term the markets are very volatile at the moment so waiting for things to settle down a bit before going long might be the best option. Assuming we don’t revisit the wild swings seen last Thursday and Friday anytime soon, a long position close to $22 would be a very good entry price with a tight stop around $21.50 to manage risk.

Right I’ll finish off this review of some of the Q1 results with a look at Google over the weekend.
Happy Trading,
SpreadTrader.ie : -)

So as we come towards the end of Q1 earnings season I thought as a follow-on from my last post I’d take a look at how the results are coming in overall and take a look at a few stocks in particular that caught my eye.

First a quick look at the results themselves, well they have been pretty amazing. As of last Friday 83% of the S&P 500 firms had beaten analyst estimates, an impressive performance when compared against the historical average of 61% of firms beating estimates. And when we say “beat” we don’t just mean topping analysts estimates by a few cent per share, nope, on average companies are beating by a whopping 21%. Another point worth noting is that when compared to last year when many firms beat estimates (albeit very low ones given the turmoil caused by the financial crisis) it was mainly achieved through aggressive cost cutting. This year things seem to be taking a different shape however with many firms beating on revenues as well as EPS, a sign that things do seem to be looking up for the US and global economies after the pain of 2008 and 2009. According to Thomas Reuters 69% of S&P 500 companies have beaten on revenue estimates.

The results from the tech sector have been particularly strong with Amazon, Apple, Intel, IBM, HP, Microsoft and Google all beating estimates. Out of this bunch I thought I’d take a closer look at Apple, Intel and Google to see what drove their impressive earnings and how their shares reacted to the news.

No Surprise in Apple’s Upside Surprise!

Probably the standout results of earnings season so far came from Apple which produced a blowout quarter that topped even the most optimistic bulls who follow the stock. Apple reported reported EPS of $3.33 on revenues of $13.5 billion against the Street’s estimates of EPS of $2.45 on revenues of $12 billion – a 36% beat on EPS and a 12% beat on revenues. For a company that is so closely followed and analysed to beat estimates by so much is amazing, you sort of wonder why all these so called experts earn the big bucks they do when they can get it so wrong…

During the quarter Apple sold 11 million iPods, 8.75 million iPhones and close to 3 million Macs. The real upside surprise here came from iPhone sales where the highest estimates from the analysts were for 7.5 million units to be shipped. It appears the pros completely underestimated the volume of iPhones Apple is now selling outside the US– particularly in Asia where growth has being phenomenal. But you don’t have to go to the Far East to see the impact the iPhone is having on society, just take a look around the luas the next time your on it or scan your office to see how many people now have iPhones – the growth is scary. Expand that from little old recession hit Ireland to the rest of Europe and the World and you can quickly get a sense for where Apple is making it’s money.

Oh and the results didn’t even include the sale of a single iPad, of which Apple have confirmed to-date that they have sold over 500K, but that was in just the first two weeks of it’s launch. The reality is they have sold many more than this, with demand for the new device running so high that Apple have had to push back the international releaseof the iPad. Assuming there are no supply issues I see sales for 2010 running over 5 million units which should feed nicely into future earnings.

As for the stock, many wondered in advance if Apple could live up to the massive expectation which had seen its share price more than double in the last 12 monthsand over 15% since the start of the year. Well they need not have worried, the blow-out results backed up with raised guidance for next quarter saw the stock gap up 6% the next day to $258, and after a brief pullback to $256 the shares pushed higher from there, reaching $272.40 last Friday. Worries over Greece and Goldman saw a significant sell-off earlier this week but the key point to note was that during Wednesday’s big sell-off the stock held above $256, holding the gap-up which came after the results. In fact Wednesday’s low brought a lot of buyers in with Apple closing back up near it’s highs of the day. From a technical perspective this created a “bullish hammer candlestick” (see chart below) which is a bullish indicator, basically defining the maximum power of the bears. That bullish indicator bore true yesterday with the stock up $7, or over 2.5%, to close back near $269 a share. Another point worth noting in relation to Monday to Wednesday’s pullback is that it was on below average volume, compared to last week’s breakout which was on volumes well above the 3 month average.

Apple Gaps Up On Excellent Results (Click twice to Enlarge)

From here I think $256 defines our downside risk, but that’s still a long way from the current price so it’s not an ideal trade to jump straight into here. Ultimately I think Apple goes higher – we just need to bide our time for the stock to settle a bit more into it’s new trading range and look to get long on any low volume pullbacks. In my last Apple post2 months ago when I discussed the potential impact of the iPad I predicted Apple, then at $200, would hit $250 before the year was out. Little did I know at the time it would take it a mere 2 months to reach (and smash through) that target level! I’ll go again and this predict we’ll see $300 before the year is out…which should mean it will be there sometime in June given my track record!

Right in an effort to deliver on my promise of shorter, more regular posts I’ll call it a day here now and will follow-up with a look at Intel and Google’s results over the weekend.

Enjoy the bank holiday,
Happy Trading,
SpreadTrader.ie : -)

On Friday the DOW closed just shy of the psychological 11,000 mark at 10,997. In fact as you will see from the DOW JONES Cash Rolling chart below it actually pushed just above the 11K mark in after hours trading. The DOW, along with the S&P 500 and the Nasdaq have all been on quite a run over the last couple of months as the markets shrug off worries about Greek debt to continue to push higher week after week. With the DOW closing up 0.5% this week it has now closed up 9 of the last 10 weeks! The big question now is, with the Q1 earnings season kicking off later today with DOW component Alcoa reporting after the bell, whether or not results can surprise enough to the upside to keep this rally going.

DOW Weekly Chart - Up 9 of last 10 Weeks (Click to Enlarge)

How Will Markets React To Earnings?

With a 12% run-up in the DOW since it’s 2010 lows on February 5th and a 70% run-up since it’s 2009 lows on March 5th it is going to take some seriously good results for the DOW and other indices to push on past the 11,000 level and make the move towards the next big resistance around the 11,800 level.

Analysts seem to be split on how the markets will react over the next 3 weeks as results come in each day. Some are arguing with the day sitting at the 11,000 level and after such a massive run-up and with equities clearly overbought right now a 5-10% pull-back is on the cards and regardless of how good, bad or indifferent the results are the market will take this opportunity to sell off. Excellent results could see a “sell the news” reaction providing traders an opportunity to take some profits after a great 12 month run. It is worth noting that during the last earnings season stocks actually lost 3% as investors sold  equities despite very strong results that easily beat what the Street was looking for with 72% of companies beating analyst estimates for the 4th quarter.
Similarly if results disappoint and fail to meet analyst consensus this will point to a US economy that is not out of the woods just yet on the recession front and is likely to leads to a fairly nasty sell-off with talk of “a double dip recession” surfacing once again.

DOW Touches 11,000 (Click to Enlarge)

The bulls on the other hand are holding out for another set of excellent results which will help reaffirm the argument that for the US the worst of the recession is behind them. Strong results, especially from the retail sector, when combined with the positive employment and housing data that has been coming through over the last few months could well act as the catalyst for the money that is still sitting on the sidelines to be put to work. According to Thomson Reuters the expectation is for S&P 500 companies’ first quarter earnings to rise 36.8 percent from the same quarter a year ago. Today’s news that EU finance ministers have reached agreement on a €30 billion loan facility for Greece should be another catalyst for the markets this week, removing one of the big uncertainties hanging over the markets for the last couple of weeks. As an aside on this €30 billion bailout, sorry I mean loan, for Greece I read earlier that Ireland has agreed to lead €450m of it to Greece if required at an interest rate of 5% which is actually slightly higher than the rate we can currently borrow at, so we might actually make money on this one if the Greeks come knocking!

But back to earnings season and how the markets might react. Personally I’m not sure what way it will pan out, the trend is definitely higher so I don’t think I’d be rushing in to short the market. At the same time the markets are certainly over-extended and a would not be surprised to see a short-term pull-back of 5% or so. If there is to be a pull-back a couple of levels that might act as support would be firstly the 20 day moving average at around 10,850. Since the market’s big 1.5% jump on February 16th the 20 DMA has acted as support when called upon, albeit only twice since then given the strength of the market. If the 20 DMA does breakdown then look to the January highs at around 10,730 and after that look to the 50 day moving average to come into play at around 10,550 as possible areas of support.

Holding Positions Over Earnings

Many traders argue that it’s not wise to hold open positions over earnings as it’s a time when stocks are prone to gap up or down depending on how the market reacts to the results just released. This is good advice and I’d definitely recommend not opening new positions in a stock which is due to release results in the coming days. Likewise if you already have positions open in which you are nursing losses but holding out hope that the upcoming Q1 results might rescue your trade this too is a very risky approach to take. I’d suggest closing out your position in advance of the upcoming results otherwise you could end up with a small loss becoming a much larger one. If on the other hand you already have long positions open which are in profit then these are the types of trade I would consider moving up my stop up on rather than close outright in advance of the results. With these positions there is still the risk of results disappointing the market a the stock gapping down below your stop but you are also giving yourself the chance to take part in any earnings surprise to the upside. It’s this last approach I’ll be taking with long positions I currently have open in Apple, Verizon, Yum and Ford which I have had open for several weeks / months at this stage and all are doing quite nicely. Over the coming days I’ll tighten up my stops so that if results do disappoint I should at least close out with some profits. Hopefully a few will surprise the market with strong results and provide some nice gap ups!

Where To Get Earnings Dates?

Before I finish up this post I wanted to touch on a question I received from a regular reader of the blog a few weeks back. Declan asked if I could cover something on where to find out what results are coming out per industry. I’m not too sure on the “per industry” part as from what I can see from my research on this the companies reporting each day over the 3 week earnings season seem to mixed across all industries. For example up next week we have Alcoa (Materials), Intel and Google (Tech), JP Morgan and Bank of America (Financial), YUM (Consumer) and GE (Conglomerate) all reporting.
So what’s probably more important for traders is for them to be easily able to find out when a stock they currently have an open position in (or one they are thinking of opening a new position in) is due to report. For this type of info I have found a site called Earnings Whispers to be one of the best out there. It’s simple to use, just bang in your ticker into the “Get Whisper” box on the homepage and click “Get”. They return a lot of very useful information such as the results release date, consensus estimate and the earnings whisper for EPS. Another useful tool on the site is the Earnings Calendar, which will show you day by day which companies are due to release earnings results. So over the next 3 weeks or so it could well be worth your while taking 2 mins each morning to click on the earnings calender for that day to see whose due to release. If anyone has any other good websites they use for earnings release dates please use the Comments box below to let us know.

Right that brings this post to an end.
Until next time,
Happy Trading,
SpreadTrader.ie : -)

I haven’t done a “Chart of the Week” post for some time now so decided I’d take a look at one this week. And seeing as it’s Paddy’s Day I thought who better to pick for a “Chart of the Week” post other than another Irish Paddy, leading bookmaker Paddy Power.

Paddy’s a True Irish Success Story

Founded in 1988 Paddy Power following the merger of 3 existing high street bookmakers the Irish bookmaker has grown rapidly over the last 20 years to a position where today it has approximately 300 retail outlets across Ireland and the UK. It’s also done a great job growing it’s online presence with www.paddypower.com one of the most popular betting sites in Ireland and the UK. In recent years the bookmaker has expanded it’s online betting and gaming options through a range of new sites including paddypowercasino.com, paddypowerpoker.com and paddypowerbingo.com. Paddy Power has also moved to take on longer term players Worldspreads and Delta Index in the Financial Spread Betting market with it’s own offering, www.paddypowertrader.com. Backed by a strong marketing campaign this revenue stream now appears to be bringing strong growth also.

And only last year it made it’s first move into Australia with the purchase of a 51% stake in Sportsbet, one of Australia’s largest corporate bookmakers, for €27 million. All this expansion is reflected in the bottom line also with the company announcing earlier this month that full year revenues for 2009 were €2.75 billion and profits of almost €67 million.

The expansion into new betting markets and continous revenue growth has been reflected in it’s share price performance also with Paddy Power one of the best performing stocks on the ISEQ over the last 10 years. It’s share price has risen from under €3 in 2000 to over €25 earlier this year, a not too shabby 8 fold increase. The stock is not cheap however, trading at approximately 20 times 2009 earnings of €1.21 per share, and therefore needs to keep up it’s high growth rates to justify this type of valuation. With current consensus coming in at approx €1.44 for 2010 earnings the firm appears to be on course to continue to deliver strong growth.

Plenty To Look Forward To In 2010

With Cheltenham in full swing and the World Cup kicking off in less than 3 months time Paddy Power can look forward to another bumper year. Although it will be hoping the sporting gods are less favourable to the punters this year than then were in 2009 when an exceptional run of results meant that despite revenues been up 31% over 2009 profits were down 15% year over year. According to the company this run of “exceptionally punter-friendly” results accounted for much more than the €9 million reduction in operating profits over 2008. Such runs of unfavourable results (for the bookmaker that is, happy days for the punters!) are an occupational hazard but one which over time tends to balance out in the bookmaker’s favour.

As well of the 2010 World Cup and the usual summer sporting events such as the GAA Championship, Gold Majors, Wimbledon, etc we can expect to see further moves by Paddy Power to expand it’s base outside of Ireland and the UK. It currently holds a 32% market share in Ireland and an ever increasing market share in the UK. Last years Sportsbet acquisition in Australia is no doubt the first of what are likely to be many acquisitions further abroad as the bookmaker looks to spread it’s brand globally.

Another move to increase it’s brand globally was the recent approach to sign a massive sponsorship deal with Tiger Woods. Paddy Power announced the week before last that an initial 5 year offer worth $75 million was turned down by Woods but that the company had not given up on what would be a massive coup to sign the world’s number one golfer and one of the most recognisable people on the planet (especially given all the recent controversy surrounding Woods’ personal life!). The approach certainly sounds genuine but one has to wonder if there is not a touch of a Mickey O’Leary tactic on the go here aswell, with Paddy Power knowing that even if their approach ends up been unsuccessful that the publicity surrounding the potential sponsorship deal itself would be no bad thing.

Technically Strong Support To Be Found Around €23

Before we finish up as is the norm on “Chart of the Week” posts lets take a look at the how the chart is shaping up technically. At first glance the stock appears to be in a sort of consolidation pattern after a massive run-up which has seen it more than double in the last 12 months. We can see very tight Bollinger Bands indicating the narrow range within which the stock has been trading in the Daily chart below.

Paddy Power Daily Chart (Click to Enlarge)

Shorter term it has been making a series of lower highs since it peaked at €26.00 in early December which would suggest going short but I would not be inclined to take that trade on. Taking the longer term view (see weekly chart below) I see this as a potential bull flag pattern, where the stock rests for a while before making it’s next leg upwards.

Paddy Power Weekly Chart (Click to Enlarge)

We can also see strong support for the stock forming in around the 2300 mark which I like as a good way to manage the risk on any Long trade. Currently trading at around 2360 ideally I’d like to get in about 50 points lower, preferably as close to 2300 as possible and then put my stop about 50 or 60 points lower.

Taking the strong track record of Paddy Power’s management team, their eagerness to continue to build and expand the company’s reach and an exciting summer of football lying ahead I see good potential for the stock to move higher from current levels.

Until next time,
Happy Trading (and Happy St. Paddy’s Day)!
SpreadTrader.ie : -)

Work travel has set me back a bit in getting the final part of the Review of 2009 up on the blog but at last here it is. As a friend of mine said to me the other day, if I don’t get the final part up soon it will be time for the 2010 review! For those who want to catch-up on Parts 1 and 2 of the 2009 Review of the Trading Year they are here and here.

September – eBay Sells Majority Stake in Skype, Inaugural Global Irish Economic Forum

September got off to an exciting start with the announcement that eBay had agreed to sell a 65% stake in internet calling firm Skype to a group of investors in a deal that valued Skype at $2.75 billion. The purchasers were a group of investors led by private equity firm Silver Lake Partners and would pay almost $2 billion in cash over to eBay for the majority stake. While eBay will no doubt be happy to get their hands on the $2 billion it is still significantly less than the $3.1 billion eBay paid to buy Skype from it’s founders in 2005. At first glance the deal appears to be good value for the investment group as Skype is estimated to have revenues in the region of $600m a year and continues to gain in popularity with people wanting to chat to their family and friends around the world cheaply. There are also rumours that Skype might be floated in an IPO later this year.

Later in September Farmleigh House hosted the Inaugural Global Irish Economic Forum, a 3 day event which brought together some of the most influential members of the global Irish community to discuss how they could work together to help Ireland’s economic recovery. The 160 attendees at the conference included such influential business leaders as Craig Barrett (former CEO and Chairman of Intel), Peter Sutherland (Chairman of BP and Goldman Sachs International), James Hogan (CEO of Etihad Airways) and Alan Joyce (CEO of Quantas Airlines). It is well known that Irish business leaders have risen to the top positions in some of the largest corporations in the world across all sorts of industries. So the organisation of a forum such as this to tap into that knowledge can only be a good thing for the country, especially given the rate at which unemployment continues to rise here at home. Here’s hoping the government acts on some of the suggestions that came up during the event.

October – US economy grew in 3rd Quarter, Obama Administration Orders Pay cuts for top bank employees, Microsoft releases Windows 7

October was a big month for the global economy with the announcement that US GNP grew at an annual rate of 3.5% in the 3rd quarter of 2009, the first growth the world’s largest economy had seen in over a year and another sign that the US was coming out of recession. As well giving a further boost to equities the news lead to the Dollar strengthening against the Euro and other global currencies as investors speculated that the Fed would begin rising interest rates ahead of it’s European counterparts. In the months that followed October’s news the Euro did rally back initially in late November/ early December reaching highs of $1.51 against the dollar. However this strength was short-lived and since then further encouraging news from the US combined with debt worries from Greece and other European countries has seen the Euro fall sharply against the Greenback, falling 10% to now stand at $1.36.

As a sign of things to come the Obama administration took a hands on approach to dealing with Bankers pay when announcing in October that the top 25 earners at the seven companies that received the most TARP bailout money would have to take massive pay cuts. While final details were not announced word on the Street was that these paycuts would average up to 50% for top earners. The targeted companies included Citibank, Bank of America, AIG and General Motors. This was the first of several moves by the Obama administration to ease the political fallout of the massive bailouts the US taxpayer had provided to leading financial institutions over the previous 12 months. As these banks started to get back to normal and were once again making massive profits Obama moved quickly to prevent a return to the massive salaries and bonus payouts that were the norm in the past.

October also saw the official launch of the long awaited Windows 7 from Microsoft. After the disaster that was Vista released just 3 years earlier Microsoft was under massive pressure to come up with a winner this time round. And by all accounts it has done, supported by an excellent advertising campaign which sees ordinary punters taking the credit for the new features, Windows 7 has received excellent reviews from tech analysts, bloggers and most importantly users of the new operating system. And more importantly for us traders the shareprice has responded positively aswell. Microsoft’s shareprice jumped over 5% the day after the official launch of Windows 7 to retail stores on October 22nd. And despite a few minor pullbacks along the way it continued it’s upward move until peaking at $31.50 at the end of December – an almost 20% rise following the launch of it’s new operating system. Like most stocks Microsoft has got hammered over the last few weeks and is now back down at just below $28. If you take a look at the chart below this looks to be an attractive entry point for a long trade on Microsoft, just above the lows of early November. Assuming the recent lows around $27.50 hold a move back up towards $30 looks a likely outcome. However be careful to keep a tight stop just below these lows as if the price does fall below this level expect the gap following the the Windows 7 launch to be closed.

Microsoft Chart - Click to Enlarge

November – Gold Hits All Time High,  Dubai Debt Crisis

November kicked off with Gold hitting a new all-time high early in the month when it traded at $1,097 an ounce, surpassing it’s previous high of $1,033 hit back in March 2008. The record price was traded after the announcement that the IMF had successfully sold 200 tonnes of gold to India’s central bank. The sale accounted for nearly half the 403 tonnes the IMF had planned to sell over the coming years and continues a trend of central bank’s throughout the world looking to diversify from holding their reserves predominately in US Dollars. As the US continues to print dollars to spend it’s way out of recession countries such as China, India and Russia have been looking to move away from holding their reserves in what they perceive to be a weakening currency thus driving the demand for Gold. Following this new high set in early November Gold prices continued to rise, finally peaking a month later on December 3rd at $1227 an ounce, a massive 30% increase in the price of the precious metal since last August.

No doubt another factor in the run-up in Gold prices was the Dubai Debt Crisis that hit the news in late November. The news that Dubai World, one of Dubai’s largest property companies which had liabilities of over $59 billion was seeking to delay debt payments sent world markets plunging, with shares in Middle East markets and banks particularly hard hit. At the time much confusion existed as to whether the state of Dubai itself was in trouble but soon clarification came through that Dubai World was an independent company, albeit one with close ties to Emirate State’s ruling family. After the initial sell-off in stocks and indices around the world the markets quickly recovered when it became clear that the crisis at Dubai World appeared to be an isolated case and relative to some of the bailouts provided to US banks in 2008 was really not that big a deal. In the end Dubai’s wealthy neighbour Abu Dhabi, holder of the world’s 6th largest crude oil reserves, came to it’s rescue, providing it with a $10 billion bailout. For many the crisis was a clear example of how Dubai, a country with very little natural resources of it’s own, had over-extended itself in a property boom that made our own here in Ireland look tame by comparison! From a trading perspective it offered many the opportunity to once again short the markets for some nice gains before they recovered to carry on their upward journey.

December – Tullow continues to find oil in Jubilee, Markets Continue to Rise into year end

Tullow Oil had another very strong year with the stock doubling from it’s open at 650p in January to it’s close at 1300p on December 31st, proving once again that Aidan Heavey’s company is a true Irish success story. In December Tullow followed up previous announcements of oil finds in Ghana’s Jubilee oil field with yet another announcement of more drilling success, this time at the Mahogany Deep-2 appraisal well. Tullow is the largest stakeholder in the Jubilee oil field which is already the largest oil field to be discovered in West Africa in the last 15 years with an estimated 1.8 billion barrels of oil. When combined with it’s recent finds in Uganda it is easy to see why it’s share price has risen so dramatically over the last year. Whether or not there’s further upside in the stock is hard to say after such a large rise in such a short period of time but it would be a brave investor who would bet against Aidan Heavey’s company continuing to come up with the goods.

Finally to wrap up December and 2009 the markets continued to rally strongly right up to the year-end, with the DOW finishing up the year at 10,400, a 19% increase over the year and a massive 60% rise from it’s lows of March 6th. The S&P 500 did slightly better over the year, closing up 23.5% from it’s close 12 months earlier and up 67% from it’s March lows. The Nasdaq performed the best of the 3 major US indices, rising 54% during 2009 and just shy of 80% from it’s March lows. All in all not a bad year after the disastrous 2008 when the major indices all fell around 35% during the year. Here in Ireland the ISEQ held up well when compared with the main international markets, closing 2009 up 29%. That compares well against the FTSE 100 which rose 20.5% and the Eurofirst 300 (the main European index) which was up 24% but still at around 3,000 the ISEQ  remained almost 70% off it’s summer 2007 highs.

Right that wraps up my look back on 2009, in mid-feb it’s about time I hear you say! I hope you found it a useful look back at some of the news stories from home and abroad that helped shape the markets last year. I’ll be back with my normal posts later in the week.

Until then,
Happy Trading,
SpreadTrader.ie : -)

Following on from Part 1 of our review of the 2009 trading year lets kick straight on with Part 2 which covers May to August.

May – Change at the top for the Indo, US Bank Stress Test Results Announced, Intel Fined €1 billion

May saw the retirement of Sir Anthony O’Reilly as CEO of Independent News and Media. After 36 years as head and the main driving force behind the Indo’s global expansion Sir Anthony stepped aside and handed over the reins to his son, Gavin O’Reilly, who was the company’s COO for the previous 8 years. Gavin took over a company going through tough times which was battling tough advertising conditions in Ireland and abroad, a massive debt which needed to be successfully refinanced and a floundering share price – down over 90% since the highs reached in the summer of 2007.

May was also a big month for the leading US banks with the results of the Bank Stress Tests announced and for some they weren’t pretty reading. Following a review of the 19 biggest American financial institutions US regulators found that 10 of them needed to raise a combined total of almost $75 billion in extra capitalby November 2009. This massive figure was actually less than what some market analysts were expecting and as a result had little or no effect on the markets continued recovery. Bank of America accounted for almost half of the total required with an additional capital requirement of $34 billion! Other banks told to raise several billion included Wells Fargo ($13.7 billion), GMAC ($11.5 billion) and Citigroup ($5.5 billion).

In other news in May, following an 8 year investigation the European Commission levied a record €1.06 billion ($1.45 billion) fine on Intel, the world’s largest chip manufacturer with approx 80% of the computer chip market. The Commission found that Intel impeded competition by offering rebates to computer manufacturers such as Dell and HP if they purchased almost all (in the region of 95%) of their chips from Intel rather than rival Advanced Micro Devices. Interestingly the news of the largest fine every imposed by the EU had little or no effect on Intel’s share price, with the stock falling a mere 20 cent on the day, or less than half a percent. Probably not a surprise given that the $1.45 billion fine represented less than 5% of Intel’s 2008 annual revenues of $37.6 billion and the company has almost $13 billion in cash on it’s balance sheet. In fact Intel’s share price rose a further 30% by year end. But perhaps the biggest winner in this particular ruling was AMD, with Intel under pressure to be better behaved going forward under the close eye of EU competition regulators AMD is obviously in a better position to start eating into Intel’s dominate position. At least the market seems to think so with AMD more than doubling since the May ruling.

June – GM Goes Bust, Swine Flu Takes Off

June kicked off with General Motors, the 100 year old car manufacturer, filing for bankruptcy. It was the 4th largest bankruptcy filing in US history and the largest for an industrial company. As part of the restructuring plan put in place for the company GM received over $30 billion in assistancefrom the US Treasury with the US government taking a 60% stake in the new GM. The restructuring will also see GM cut four of it’s  brands including Pontiac, lay-off over 20,000 employees andcut it’s dealers from over 6,000 to around 2,500. GM’s bankruptcy follows on shortly after it’s rival Chrysler had also filed for Chapter 11 in April of this year.

June was also the month when the World Health Organisation announced that swine flu (the HINI virus) had become a global pandemic after it had spread to 74 countries and killed 144 people. Despite all the coverage and fears of a massive increase in the spread of the disease it had little or no effect on global markets.

July – US Banks Announce Massive Q2 Profits, Microsoft and Yahoo Team Up To Tackle Google

Just a few months after repaying the billions in bailout money they received from the Feb, several of the US’s biggest financial institutions posted massive Q2 profits. Goldman led the charge announcing profits of $3.44 billion. Next up was JP Morgan with profits of $2.7 billion. But it wasn’t just the big investment banks that had returned to making massive profits, Bank of America and Citibank were not to be left out either, reporting profits of $3.2 billion and $4.3 billionrespectively. The results were better than many analysts were expecting and helped the argument that the world’s financial market’s were at last stabilising. The results also helped halt a pull-back in the major US indices which had seen the DOW fall 10% in a month.

July also saw the latest instalment in Microsoft’s on-going courting of Yahoo! as it tries to gain further market share from Google in the lucrative online search market. With Yahoo! struggling to make any in-roads into Google’s dominance Microsoft launched it’s own rival search engine, Bing. Microsoft then followed the launch of Bing up with an announcement that it had signed a 10 year deal with Yahoo! which would see Bing become the exclusive search engine for all Yahoo! sites. So what does all this mean for the online search market? Well while Microsoft is certainly making some progress, Google is still the boss and Yahoo! continues to drift and count the cost of turning down Microsoft’s massive $44.6 billion bid for the company in February 2008. Today Yahoo! has a market cap of about half what Microsoft bid for the company 2 yrs ago. I wonder how long it will be before Microsoft comes back with a new offer for the former search engine giant?

August – C&C buys Anheuser Busch Assets, BernankeGets A Second Term

In one of the bigger acquisition deals by an Irish company in 2009 C&C announced in August that it had reached agreement to buy the Irish and Scottish assets of Anheuser Busch for €205 million. The deal gave C&C the right to distribute well known beer brands Tennents, Stella Artois andBecks in Ireland, Northern Ireland and Scotland. The deal was well received by the market withC&C’s share price rising from around€2.00 a share to over €3.00 in the month following the announcement.

Also in August Ben Bernanke was nominated for a 2nd term as Chairman of the US Federal Reserveby President Obama. Bernanke was arguably the most important man in steering the US (and World) economies out of the worst recession since the Great Depression of the 1930’s. The 56 year old’s nomination for a 2nd term in charge of the Fed was an obvious vote of confidence from Obama in the job Bernanke was doing but also served as an example of Obama following through on his pre-election promise to move away from the bi-partisan politics that had become commonplace in the State under previous administrations. Instead of putting a Democrat into the hotseat Obama instead decided to stick with the man he believed was most qualified for the job. Bernanke’s approach to rescuing the US from another Great Depression was to pump trillions of dollars into the ailing economy, to bailout the financial institutions to the tune of billions of dollars (earning him the nickname “Bailout Ben”) and to reduce US interest rates to all time time low of “near zero”. While we are still in the early days of recovery so far it looks like Ben’s approach has done the trick. Later in December 2009 Bernanke would receive further endorsement of his role in the global recover when named Time Magazine’s Person of the Year for 2009.

Ok that wraps up Part 2 of our look back on 2009, we’ll finish up the review of last year with Part 3 in the coming days. Until then,
Happy Trading,
SpreadTrader.ie : -)

Happy New Year! I hope you all had a nice Christmas and wish you all the best in your trading for 2010. As we start into a new trading year I thought I’d start 2010 with a post taking a look back at they year that was and look at what for me were some of the highlights (and a few lowlights) of the 12 months just past.

It was certainly a year jam-packed with news - one where equity markets hit lows not seen since 1998, gold hit record highs, the worlds governments bailed out their banks and the US’s largest car manufacturers flirted with bankruptcy for most of the year, to name but a few of the news stories that traders had to deal with in 2009. Below is a month by month review which looks at some of the key news stories that hit the headlines each month. As this post would be rather long to cover the full year altogether I have decided to split the post up into 3 sections, first up January to April. Later in the week I’ll post May to August before finishing up with September to December. As always if you want to add some highlights of your own feel free to use the Comments box below.

January – Obama Takes Office in US, Anglo Nationalised

Believe it or not the markets actually got off to a positive start in January (well only for about a week!) as investors looked forward to a new era of growth for the US under their new Commander In Chief, Barack Obama, who was sworn in on January 20th. Obama had set out many goals as part of his election campaign including health reform and closing Guantanamo Bay but top of his list for his first few months in office was getting the US economy back on it’s feet and much needed job creation. As the year progressed Obama quickly found out the pressures that come with leading the world’s most powerful nation.

Closer to home, 2009 was starting off even worse than 2008 ended, with January seeing the Irish Government finally giving into the inevitable and announcing the long overdue nationalisation of Anglo Irish Bank. Needless to say the news led to a massive sell-off in the other Irish publicly quoted banks with AIB falling a massive 85% in the following days to a low of 25 cent, BoI falling over 70% and Irish Life & Permanent falling 55%. Those brave enough to buy in at these low levels were well rewarded for their risk with with AIB and BoI up over 10 times their January lows by October and IL&P up 5 times it’s January lows. Of course there were many big pull-backs along the way to those October highs, making the Irish banks some of the hardest stocks to trade in 2009. I expect more of the same volatility in 2010 as the market tries to figure out what impact NAMA is going to have on the Irish banking sector.

February – Consumer Confidence Hits All Time Low, The Month of the Stimulus

Driven by a deteriorating business market and rapidly increasing unemployment, the US Consumer Confidence Index sank to an all time low of 25.3 in February, the lowest level since the measure was first taken in 1967. The news confirmed the market’s worst fears on the impact the recession was having on the US and other major economies.

As global markets continued to plummet the US decided to spend their way to stability with February seeing Obama signing a $787 billion stimulus package into law. While it didn’t bring an immediate end to the falling stock markets as the months passed and the benefits of billions in tax cuts and capital spending started to flow into the economy it ultimately led to a recovery in equity markets as the year progressed. It was also one of the main contributors to a weakening US Dollar which went from $1.25 against the Euro at the time the stimulus package was announced to over $1.50 by early December before recovering somewhat in the last couple of weeks.

March – Markets Go Into Freefall, Madoff Sentenced, CRH Raises Cash

The major US and global stock markets hit their low on March 6th, the DOW eventually 6,440. This signalled the button of a steady decline (and at times not so steady but more complete freefall!)  in equity markets which began in October 2007. From it’s highs of over 14,000 the DOW fell 54% before beginning it’s rebound in March of last year. Since then the DOW, S&P 500 and Nasdaq have all risen over 60% in a steady recovery fuelled by record low interest rates in the US and a weak dollar. Click on the chart below to have a closer look at how the DOW preformed in 2009.

DOW 2009 Chart (Click to Enlarge)

March was also the month when Bernard Madoff pleaded guilty to 11 counts of fraud and admitted his investment fund was actually one massive Ponzi scheme. Exact losses suffered by Madoff’s clients are hard to quantify but are believed to be in the region of $18 billion. He was subsequently sentenced to 150 years in prison in June of last year.

At home Ireland’s largest publicly quoted company, CRH, successfully completed the largest rights issue in the history of the State, raising €1.24 billion through the sale of new shares. Given that the rights issue was launched in the middle of the credit crunch the fact that it was over 94% subscribed was a massive vote of confidence for the company. The money raised is expected to be used to pay off €500 million in debt and fund future acquisitions. The run-up to the rights issue saw a big fall-off in CRH’s share price, dropping to below €13 per share at one point in March before rebounding strongly throughout the rest of the year to close 2009 above €19.50 (a 50% increase from its year low).

Also at home, after a High Court appeal Kerry Group eventually completed the €140 million acquisition of Breeo Foods, owner of the Dairygold, Shaws meats, Mitchelstown cheese and Galtee rashers and sausages brands.

April – Japan Announces Stimulus Package, Another Budget for Ireland, Tysabri News Sends Elan Higher

Hot on the heels of the US, the world’s second largest economy announced it’s own stimulus package to help improve it’s faltering economy. Japan’s stimulus package totalled 10 Trillion Yen (or almost $100 billion).

At home Brian Lenihan announced details of Ireland’s 3rd budget in 18 months, one of the most severe in the history of the State aimed at restoring the public finances.  Some of the main measures introduced were:

• The income levy rates doubled to 2%. 4% and 6% and the entry points for each rate reduced
• The health levy rates were also doubled to 4% and 5%
• Mortgage Interest Relief only available for first 7 yrs of the mortgage
• Capital Gains Tax increased from 22% to 25%
• Increases in excise duty on cigarettes and diesel (petrol and drink off the hook)

Also in April an announcement from Elan and partner Biogen Idec outlining new research data showing the potential for their Tysabri drug to reverse damage caused by multiple sclerosis sent shares of the Irish pharmaceutical company higher. This news combined with ever increasing rumours of expected partnership with a major pharmaceutical company sent shares rocketing up 50% over the following 5 weeks.

Ok, that wraps up Part 1 of our 2009 review, until Part 2,
Happy Trading,
SpreadTrader.ie : -)