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Australia Lowers Cash Rate

The Reserve Bank of Australia has decided as of 2:30 pm AEST, to lower the cash rate to a 25 basis point cut to 7 per cent, effective as of the 03rd September 2008 – according to Governor Glenn Stevens.

In an effort to restrain demand where inflation has been growing over the past year with limited capacity and in order to reduce inflation over time – the Reserve Bank decided to lower the cash rate to 7 per cent.

Traders and speculators anticipated a rate cut by the Reserve Bank and drove the Australian Dollar to its lowest level in almost a year against the US Dollar.  This is the first time the interest rates were lowered since 2001.  It was also driven by high demand in US Dollar in the expectation that the Hurricane Gustav was a weaker than expected storm and there was an easing concern of major damage to rigs and refineries.

According to Glenn Stevens of the Reserve Bank board, surveys a softening in business activity and growth in production has slowed.  Fixed investment spending continues to be strong and at the same time, high prices of oil and other commodities have added to global inflationary risks.

Looking further ahead, inflation is likely to remain relatively high in the short term, household demand remains subdued and a slower economic growth over the period ahead.  The Reserve Bank forecast that inflation will fall below 3 per cent during 2010.  The Board will also continue to monitor demand and inflation over the period ahead and will issue monetary policy if needed to bring inflation back to the 2-3 per cent target over time.

What are your thoughts on this?

US Stocks Decline led by Financials

There has been talks again of concern on whether the RBA will need to rescue two of the biggest financial companies that holds the majority of mortgages in United States – Fannie Mae & Freddie Mac.

The shares of both companies fell to the lowest levels in almost twenty years and the statement from Barron’s didn’t help when they mentioned that shareholder’s of the two biggest mortgage holders will be wiped out if the Treasury decides to rescue them.

The S&P 500 lost 19.6 points to 1278.60, the DJIA fell to 11,479.39 and the New York Stock Exchange lost 7 stocks for every 2 that advanced. Fannie Mae fell to its lowest price of $6.15 and Freddie Mac fell to $4.39 – its lowest price since 1991.

The S&P 500 lost 13 percent this year as the biggest housing slump since the Great Depression slowed down consumer spending.

Here’s some technical analysis on the S&P 500.

S&P500 on 18th Aug 08

This is the chart of the S&P 500 on the 18th August 2008. It shows a bearish flag formation and has hit the resistance of 1303.8 and fell to around 1278 points.

It finished the day just outside of the bearish support flag but also within the support line of 1278 points.

Should it break through the support line, it may go even further south. This would be interesting to watch and see what happens tomorrow.

As for the Federal Reserve chairman Ben Bernanke, he’s struggling to define which financial institutions he would let fail. Which goes to show, if he’s trying to decide which ones the Federal Reserve would bail out and which ones they would “let fail” – then the Federal Reserve is really saying there is definitely something wrong with the economy, without saying it directly.

What are your thoughts on this?

Bank Policy for Australian Government

The Australian (Labor) government will retain its ruling of four pillars banking regulation in a bid to prevent mergers from Australia’s four biggest banks, said the Australian treasurer Wayne Swan on Monday.

The government will also establish a scheme that would give depositors of banks and insurance companies quick access to funds should a financial institution fail.

Following the recent global credit crunch and the instability in the financial markets, this would give a broader review of the health of the financial system in the country.

Swan said that, “the government considers that Australia is best served by a stable banking system that can continue to draw on the strength and risk management skills of four major banks rather than a smaller number”.

It comes after the announcement of one of the four major banks Westpac merged with the fifth biggest bank (St. George Bank) creating the biggest bank in Australia with a market capitalisation of $66B.

Fingerprint collection for international travellers

The Bush Administration has proposed to require fingerprint collection from international visitors when they are going through airports or cruise liners.  The fingerprints collected would be sent to Homeland security department soon after the visitors leave, according to a proposed rule.

Fingerprint Scanner

 (Here’s a type of fingerprint scanner used in the UK but not necessarily in UK aiports.  Taken from website)


The proposal to be announced Tuesday will close a security gap identified after the 9/11 attacks.

According to DJ Newswires, Airlines and cruise ship operators must provide the department with biographical information before they leave the country and to do that they will need to have biometric information – such as fingerprints.  The data needs to be collected and then transmitted within 24 hours of the visitor leaving the US, according to a homeland security official who spoke on condition of anonimity as the announcement had not yet been made.

Here’s a link for some of the places where an international visitor would require their fingerprints.  Ten fingerprint scanners have already been enforced in some US airports since November 29, 2007.

What is your take on this?  Are you prepared to provide your identity and have Uncle Sam know exactly where you’ve been and when you were there?

Expect to see more of these fingerprint scanners at an airport near you.

US Tax Relief for Banks and Homebuilders

In an aggressive effort to help home builders and struggling owners, the US Senate passed a combination of tax breaks to address the dwindling housing market.

The senate passed a regulation by allowing a $25.5B new property tax deduction to relieve the banks and homebuilders and a $7,000 tax credit for a purchase of a foreclosed home.

US Tax Relief

(picture taken from

Despite the majority of the senate voting 84-12, the chances of the legislation becoming law is very slim.  Some senate republicans and the white house have criticized the various aspects of the housing bill.  In a letter sent to the White House speaker Nancy Pelosi, “We must not prolong necessary corrections in the housing market, bail out lenders or subsidize irresponsible borrowing and lending”.

The most controversial provision in the bill would allow businesses to offset their losses this year and next year against gains made from previous years, which may help homebuilders and financial firms that made billions during the good times and are now facing insurmountable losses and writedowns.

This has angered some conservatives and other housing groups who believe that these businesses do not deserve a bailout.

The White House is pushing forward its own package stimulus proposals which includes, tax credits for first time home buyers, increased housing assistance for low income rental housing and modest property tax deductions.

House democratic leaders hope to pass their legislation by the end of the month.

Losses mount for Opes Prime’s clients in Australia

In the last couple of days, huge losses mount for Opes Prime’s clients as the stockbroking firm had been determined that it was insolvent.

Opes Prime Logo

(graphic picture taken from website:

Opes prime is a firm that deals in stockbroking, asset management and corporate finance. It has recently collapsed after one of its prime auditors Ernst & Young only took two hours to determine that the firm was insolvent.

As administrators of the collapsed stockbroker rushed to seize control of a mysterious British Virgin Islands company which links three of the firms directors clients were told they could only collect $0.30c in the dollar in return for their share portfolios which were liquidated by its secured creditors to recover around $1.3 billion in debts.

Opes Prime administrator John Lindholm predicted it could be even less if he was unable to recover from favoured clients who were protected from margin calls.

Opes Prime directors called in the administrators on March 27 when they discovered a $200M hole in its accounts. ASIC investigators have discovered that six clents’ accounts had been protected from margin calls through “top ups” with other people’s stock.

It has also since been discovered that Riqueza (a British Virgin Islands based company whose sole director is Jay Moghe – who also owns Opes Singapore) is one of the main focus of the investigation as Riqueza was used as an intermediary between Opes Prime and two other investment vehicles named Leverage Capital Pty. Ltd. (owned by Laurie Emini and Julian Smith and Hawkswood Investments Pty. Ltd. (owned by Laurie Emini, Julian Smith & Anthony Blumberg).

Mr Moghe who is a sole director and shareholder of Riqueza is a Singapore-based businessman, who also recently resigned as the chief executive of an Opes Prime subsidiary based in the Virgin Islands, said that while he was the sole director and sole shareholder of Riqueza – had been wrested from him. Therefore, he “has no control over it”… he says he knew there were some transfers but he has no control over any of it,” Mr. Moghe said last Tuesday.

On a strange twist of fate, Mick Gatto a Melbourne underworld figure who was acquitted of murder in 2005 over the fatal shooting of Melbourne hitman Andrew “Benji” Venjiamin – boasted to The Australian Financial Review that he could do a much better job of tracking the losses than the administrators of the collapsed broker.

According to The Australian Financial Review, ‘Mr Gatto and business associates John Khoury and Matt Thomas said they were confident they could achieve a better result than the $0.30c in the dollar return flagged by the Opes Prime administrator John Lindholm.

According to Mr Gatto, although he “wanted to try and get a result for everyone and while acting for his clients” – he could not say which ones he is acting for.

This will be interesting to see how this story unfolds whilst investigations are ongoing.

Have we seen the bottom?

I am a little surprised on where the market is at the moment.  I initially thought, we had a fair way to go further down and yet it seems that big Ben had his way on the Fed intervention.  On a technical analysis, it seems that the markets had bounced off with a rally on the way up.  Here’s where the markets are at the moment.


This is the 10 year chart of the S&P as of the 04th April 2008.

It showed a bounce off the support level at 1,312 and rallied up from there.  It now seemed to consolidate around the 1,370 mark and will more likely consolidate around the 1,388 resistance level.


This is the 10 year chart for the UK 100 as of today the 04th April 2008.

This too had a rally from hitting the support at 5,568.5 and opened and closed higher in the last 5 days.  It now seemed to be heading in the resistance level of 5,970.


This is the 10 year chart for the ASX 200 as of the 04th April 2008.

It also seemed to have hit the resistance line of January 2007 high at 5,677.  This will be an interesting one to watch on Monday as it seemed to also be trading at or just under the resistance level of a bearish flag formation.


This is the 10 year chart of the Nikkei 225 index as of 04th April 2008.

This index surged through in the last 4 days of trading and have also gone past the resistance bearish flag of around 13,233 level and is on it’s way to test the resistance line of 13,716 – also the matching the early October 2005 level.

I think there are certainly some oversold stocks that are great for long term outlook, but I believe there are still some uncertainty in the current marketplace that one needs to place some disciplined approach to trading and investment.

What is your take on the current market?

Fed Lowers Rate

As per my previous post about the Federal Reserve lowering rate, as of this morning (US time) they have indeed lowered their rate to as low as 75 basis points. Although, the expectation in the market is around 100 to 200 basis points in the view to shock the market and induce the economy – 75 basis points is still relatively high and in fact higher than what they have provided recently.

As a matter of fact, the Federal Reserve has cut the benchmark lending rate by 2 percentage points this year, the most aggressive easing since the federal funds rate became a target of policy in the late 1980′s.

The current lending rate for the Federal Reserve is 2.25 percent.

This created a rally in the markets as the Dow is up 356.09 points (as of this writing). The ASX 200 futures is up 104.9 points, the Nikkei is up 176.65 points (all current as of this writing).

Expect to get a spurt on the local markets because of this announcement. On technical analysis, there are some good opportunities for short-term gains. Fundamentally, this action is an attempt by the officials to prop up the faltering economy and restore faith in the US financial system. In a way, this is telling something about the US economy as the Federal Reserve is trying their best to aggressively tackle this ongoing issue.

Will this market hold higher? Only time will tell…

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