CTS Spotlight for the week of February 25, 2011

Hello and welcome back to CRI's CTS Spotlight,

022511: Once again, those shorting the Swiss Franc have been stopped out, ugh! There is an old adage that these things come in threes so I will patiently wait for yet another breakdown to play my Swiss Franc puts. Flying bullets have a habit of injecting confusion into the market and that is exactly what I see now. It is interesting to note that the recent equity weakness has done little technical damage and one ought to still look for higher prices down the road. As an illustration of the potential to come, this weeks CTS spotlight will take a good look at Australian equities in the face of its rising currency. 

Australia has benefited greatly from the build-out of Asia in general and China in particular. Considering Australian short term interest rates are still quite comfortably above North American and even European short term interest rates, there is still great relative attractiveness for bankers to have their money working 'down-under'.

The chart below is of the Australian currency. The recent break to new 7 year highs (above 1.02US) suggests that money is still flowing into Australia and that one ought to look for substantially higher prices down the road. Indeed, even the past two year consolidation (and subsequent breakout) paints a target near 1.05. The violent bull flag formation since the '08 lows has continued to play itself out in near text book fashion.

The chart above is of the Australian equity market. This is the broadest index in Australia and basically reflects equity performance 'down-under' Here we see the infamous bull flag formation just starting to breakout and what has got me particularly interested in the trade. Should we get a move above the recent highs (at 5048) one can realistically look for a target in the 6150 area. This is just about 1100 points or 21.8% higher! Now have I got your attention? I will be looking at the call options will particular attention over the coming week and if I can find a trade where I can buy at least 6 months of time and can pay a premium that is half what I think the option's intrinsic value will be at our target, then I just may pull the proverbial trigger. OnlyDoubles NewTrades Subscribers, keep your eyes and ears peeled...

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com