Tuesday, April 3, 2012

U.S and U.K PMI's come in better than expected - and the sp500 close to its highest level since December 2007.  We have now cleared 1400 fairly convincingly, and the ASX is now above its 4300 level which means we need to be long this rally, despite how extended this bull run has been.

- The short term contrarian trade would be to be short asx financials and long asx commodity players, RIO and BHP are in a no brainer buy zone if we continue on this risk on rally.  Financials globally however have lead this rally since the contagion has subsided, and should be slower to take gains, especially with the ASX banks now past their dividend periods.

- The pace of which the underperforming asx200 will depend on upcoming China loosening their rates which will lead to continued strength in the cyclicals, and the falling AUD should actually be a net positive on local markets, despite strong USD being a potential headwind against risk market trades.

- Gold has held up fairly well after some strong selling in the past weeks, we still need to recover the 1700 price line to see continued favourable allocations to this trade, so far I'm long GDX, and ABG - and reduced my local exposures to gold producers.

- Oil seems to be languishing and going nowhere, for now this trade is poised to breakout either way - if we see oil continue higher, then WPL seems like a good place to capture the rally, or the USO if we're more conservative.

- The headlines have been dominated by GRPN - falling 16.9% after they revised 4th qtr estimates and accounting gimmicks - partly due to poor management allocating risk in their sales of coupons, but also the fact that they are in relatively new markets, and the way valuations occur in new products can sometimes cause price volatility as their earnings remain volatile.  The competitive forces of amazonlocal and google and even Yelp potentially offering coupons, and the flurry of local players like Spreets - Groupon will definitely be facing an uphill battle and can become a prime short - this is a definite short on any price bounce.

- LULU; as a short, they have been a very bad performer - they came in with earnings beat that was already pre-signaled, but their revenue guidelines were revised slightly lower - this saw an initial sell-off, but a huge intra-day rally saw it reach new price highs.  We saw that the insiders have been selling a boatload of shares in the low 70's prior to release of their earnings, but they've also seen broker upgrades across the board, and we're seeing another up-leg in the price action.  Normally I would close this short position, but something about the revenue growth seems very fishy - even the per sqm sales number - the highest gross number in retail, seems very unbelievable for a relatively new brand, some clue to the fact that their product isn't such a hit is that it's catered to a very niche market - females, yoga, and the U.S.  LULU has tried and failed with the franchises in Australia (and are re-branding) and didn't work in Asia Japan. The other major sports players will likely also be entrants into this market at some point, which will definitely erode their high margins.  However this will be a drawn out play, the price action will continue with the momo players; without a negative catalyst, this is not a short for the weak of heart.