Australian Investment Blog

Good morning everyone Overview Yesterday's papers were full of the massive rally in Iron Ore and the local resource stocks opened with the anticipated surge. However, by market close the picture was almost ugly and people were quoting at nauseam "what goes up must go down" and "buy on rumour sell on fact". One characteristic that has been holding true over the last year is that the press has been an excellent reverse indicator at panic tops and bottoms! Fortescue (FMG) had reversed 50c (15%) to be down 9.4% on the day with heavyweights BHP and RIO also closing in the red. Reiterating our view from yesterday, Market Matters has no interest in chasing these resource stocks as investments after their recent strong gains. However, for the very active investor / aggressive traders the story may be a little different. Market Matters could buy FMG ~$2.70 with stops under $2.55 targeting a retest of the $3.20 region. - see Chart 1 below Turning to the Markets We are currently slightly more comfortable with Iron Ore than Crude Oil and it was interesting to see the bulk commodity only down 0.2% after the extraordinary +18% rally the day before; conversely oil is down 4.4%. There are a number of reasons we would consider an active investment into FMG, including: 1. We remain positive the Emerging Markets Index looking for a further ~10% upside from current levels and this index has a large correlation with Australian resource stocks.- see chart 2 below.