Equity And Index Trading Strategies

Risk Aversion Back on The Menu

Fri, May 9 2008, 10:10 GMT
by Christian Svendsen

Saxo Bank


With risk aversion picking up, stocks look to close the week, in a weak fashion


MAJOR HEADLINES - PREVIOUS SESSION

US

U.S. stocks advanced after Wal-Mart Stores Inc. and News Corp. posted sales that topped analysts' estimates and commodity producers rallied on higher gold and oil prices. Wal-Mart rose as shoppers seeking discounts boosted sales. News Corp., the owner of Fox television, jumped on revenue that was lifted by advertisements for American Idol and the Super Bowl. Alcoa Inc. climbed to a six-month high after naming a new CEO. The market's advance was limited as record oil prices pushed other consumer shares down.

Asia

Asian stocks declined led by automakers and technology companies, after Toyota Motor Corp. and Olympus Corp. forecast lower profits on rising raw-material costs. Toyota, the world's second-largest automaker, slumped after saying higher gasoline prices and a U.S. economic slowdown will erode profit. Olympus tumbled the most in three months. BHP Billiton Ltd., the world's largest mining company, and Hong Kong's Cnooc Ltd. gained after oil futures traded above $124 a barrel.


THEMES TO WATCH – UPCOMING SESSION

Market Comment

We expect the European markets to open -0,4% lower today. The US indices were flat after closing in Europe, but the S&P500 future is down by -0,6%. One of the main driver are the figures of AIG after closing. They mentioned that they need to raise $12,5 billion new capital due to the subprime write downs. Crude oil still gains over night to $124,3. We still have 2 open trades (long Total and short BMW) who “play” the rising oil prices. Additionally we would like to short the airlines and especially the low cost carrier. Fuel prices are big part of their cost base and they have not hedged all their fuel consumption. We recommend to short EasyJet and our favorite Ryanair. Watch out for Q1 reporting of Gas Natural, Pirelli, Linde, Allianz and Telecom Italia.


Trade Idea:

(Sell – Merck KGaA - MRCG:xetr):

The rally in the German pharmaceutical company is coming to an end, we feel the rally is overdone and the technical picture suggest a new wave down. There is no fundamental case for this trade and should be seen as a purely technical trend trade. We look to sell towards 89.50 with a stop above 93.50 initially targeting 78.00

Trade Idea


INDEX TECHNICALS

Index Technicals

Published on  Fri, May 9 2008, 10:13 GMT

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Legal disclaimer and risk disclosure

Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

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