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Local market to be supported by fear of missing out

09.52 AEDT, Monday 21 January 2013

Local market to be supported by fear of missing out

By Ric Spooner (Chief Market Analyst, CMC Markets)

A positive tone from US markets is likely to see the local market continue its relentless move higher today. Investors waiting for a pull back to buy at better value have been continually frustrated by the almost one way direction of the index since mid-November.

Against this backdrop, today looks like being one of those days in which the market continues to grind higher as buyers, concerned about missing out, look to increase share market exposure against a background of reduced international risks and low interest rates.

Although there is little economic news scheduled for today and there is a public holiday in the US tonight, investors will be focussed on the results of the Bank of Japan meeting to be announced tomorrow. There is a general expectation that BOJ will set an inflation target of 2%. Meeting this target will require substantial monetary and fiscal stimulus which will be supportive for world growth in general and the Asian region in particular. Investors are likely to be cautious about selling prior to this announcement.

With the S&P/ASX 200 index having rallied so consistently, it is now well above long term trend line and moving averages. Although this gives plenty of scope for mean reversion, the market is into clear air in terms of resistance and there is plenty of room for the current rally to continue if news flow remains favourable. The next major resistance is at around 4975. The recent minor correction provides near term support between about 4715 and 4750 with the October peak at 4587 representing the next support below that.

The Financial Products offered by CMC Markets Asia Pacific Pty Ltd (ABN 11 100 058 213, AFSL No. 238054, the CFD issuer), CMC Markets Stockbroking Ltd (Participant of the ASX Group, ABN 69 081 002 851, AFSL No. 246381, the stockbroking services provider) and CMC Markets Pty Ltd (ABN 75 100 058 106, AFSL No. 279437, the education services provider) (“CMC Markets”) carry varying amounts of risk. Leveraged products, such as CFDs, Options and Warrants carry more significant risks than other products and may not be suitable for all investors. You should consider whether or not financial products including CFDs are suitable for you. CMC Markets recommends that you should seek independent professional advice and ensure you fully understand the risks involved before trading.

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