Don't ask why - just enjoy the ride

Countryman

After consolidating in the early part of last week, the ASX 200 broke out to the upside on the back of better than expected reports from the Commonwealth Bank (CBA) and Wesfarmers (WES).

Markets were further boosted by positive spiels from European leaders coming back from their summer vacations, including the Germans hinting at supporting the next grand plan to save Spain and Italy.

Although always being cautious of a false 'breakout', it was pleasant to have some 'green on the screen' after six months of very weak sentiment.

The ASX 200 index seems to be trending towards testing the 4400 level, where technically it should meet resistance.

This level is significant because it is where the market first broke down from and represents a psychological line in the sand. To move back above it and higher will indicate whether economic conditions have genuinely improved and whether the politicians have something significant to change the eurozone woes.

If the market isn't convinced of a true 'fix', investors may decide to take defensive action and lock in profit.

Even with the market trending upwards it is interesting to look at the contrasting profit results being reported and the very different share price behaviour because not all stocks follow the market trend, especially during the earnings season.

A prime example last week was the reports of two of the top 20 companies - Wesfarmers and QBE Insurance (QBE). These two companies were at either end of the spectrum when it came to their results and market reactions.

Wesfarmers surged to a 15-month high of $35.20 on Monday after announcing a final dividend of 95 cents fully franked, which beat market expectations of 90c, and a fiscal 2012 net profit rise of 11 per cent.

At the opposite end, QBE's first-half profit disappointed by coming in below analyst estimates and announcing a smaller dividend of 40c a share.

This saw the stock fall more than 9 per cent in early trading last Friday morning before bouncing back to be trading at $12.89, still down 5.5 per cent at the time of writing this article.

At least this activity finally gives some interest to the market and added anticipation of what surprises we have for the next week.

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If you would like to subscribe to Adam Farrall's weekly market update, contact him at Sentinel Stockbroking on 9225 0020 or email afarrall@sentinelgroup.com.au

Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time.

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