Catalysts

The Asx 200 is up 1% at 2.49 pm as catalysts for a rally have emerged. One of them is private equity trying to buy Pacific Brands for around $600 m. It will have to be a starting point because the stock has gapped up to 65 from a close of 56 so that the market is now valuing the company at just under 600 mill. I hold shares in my super fund and I'm certainly not a seller at this level. Despite a 30% cut in predicted profits, the P/E ratio is around 6 and the dividend yield pretty healthy. Most strategists are looking for the trough to be seen this year so results are expected to improve.

Forgetting about the specifics of PBG, the message is that the market has sold certain stocks to excessively cheap valuations.

Another catalyst is a turnaround in Chinese markets with the Shanghai index up 5% over a couple of days and the HSI looking to break up out of a pennant.

A third circuit breaker is the US reporting season with optimistic talk from Alcoa management helping AWC to rally along with much of the resources sector.

3.08 I bought some BLD at 363 just before Christmas and almost stopped out yesterday. The stock has had a dramatic bounce (as it did last week) but I'm hoping that there'll be some follow though this time. I'm targetting something around 400.

Fortescue broke below 440 around Christmas but there was little selling pressure and a low was made above the extremes of early and mid October. It looks like the move down from the 534 high was a choppy b wave and we could be in for another push towards 520, 540. Long at 452 with the stock trading at 455. I decided to buy before the close in this instance since the overall market was well supported and my stop reasonably close at 438.

4.12 The market held on to the gains, finishing up 47 at 4152, with FMG closing at 457.