1. This weekly report provides an overview and analysis of topics including the Dow Jones monthly outlook, a valuation summary of the David Jones takeover offer, a technical outlook on the Japanese Yen crosses, upcoming client webinars, and Invast's new daily Forex podcast. 2. The chief market analyst believes the US stock market may be due for a small correction as part of an ongoing upward trend, and outlines a strategy to short the Dow Jones over the next 4-6 weeks for a potential 8-10% fall with a stop loss of 2% above current levels. 3. A valuation summary shows the David Jones takeover offer of $4.90 per share represents a reasonable premium that is

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Week Commencing April 14, 2014

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This week we look at the following topics:
1.0 Trade review on the Dow Jones & monthly
outlook
2.0 David Jones takeover & valuation summary
3.0 Technical outlook on Japanese Yen crosses
4.0 Upcoming client only webinars
5.0 Invast’s NEW daily Forex podcast channel

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1.0 Dow Jones monthly outlook
The following note was published by Chief Market Analyst Peter Esho to clients on 7 April. Here it is with more
detail.
Taking action is the most important part of becoming a successful trader. Sometimes doing nothing is the
best decision, but not in this instance. I think global stock markets will continue to rise over the next few
years but I feel that the US market is running out of puff and might be due for a small correction as part of an
ongoing upward trend. The worst case scenario is that I’m wrong, the best case is we back this conviction
that I have and capture some trading profits.
It’s always difficult to pick the top of the market. Many analyst, advisers or
fund managers point to periods of time where they have been right in
picking an upward or downward point but many of these guys won’t show
you instances where they have made a call and got it wrong. Hindsight is
always correct! When I look at markets, I take on board all the fundamental
and technical information but the most importance part of the trade is
having my own conviction. I follow my instincts.

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Let’s explore the way I would trade this.
1. My first assumption is that I can be incorrect, there is a good chance that I don’t get my conviction right. I don’t pretend to be
perfect. It’s not about ‘being right’, it’s about making money. If I get things wrong, I need to be brave and disciplined enough to
take a loss. I then set my stop loss level – the maximum amount of money I am willing to lose if my conviction is incorrect and the
market moves against me. This level will dictate what my reward target is. Without risk, we cannot forecast reward. If you don’t
factor in the chance that you are incorrect you will eventually find it difficult to trade successfully like the pros.
2. The US market and particularly the Dow Jones Industrial Average hit an all-time high recently. Sure the economy is recovering, but
things are far from perfect. The US Federal Reserve has been pumping the financial system with cash and this has fuelled
investment across all risk assets, particularly US dollar dominated ones like stocks. I learnt a very important lesson from one of my
mentors many years ago – an investor who has successfully been trading the markets for more than 40 years – his advice was not
to fight the Fed when they pump money.
3. But what about following the Fed when they withdraw the money? I wasn’t experienced enough to ask him that those many
years ago. Perhaps I will the next time I bump into him. Following the Fed the other way seems to make sense to me. I think
eventually the US Federal Reserve will have to start warming the market to higher interest rates. It will need to do this without
sacrificing the fragile recovery in the economy but based on recent data, things are not as desperate as they were a few years
ago. Every central bank needs to ensure credibility and the US Federal Reserve needs to start warming the market to the prospect
that rates will need to start rising. It has already done this but will continue to do so, the market will listen. The market will start
to look forward by around 12-18 months and so the very first sniff that the Fed is more hawkish than expected will see higher rate
assumptions and pressure on stocks – which have run very hard.

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The reason why I think the Dow Jones Industrial Average is a good Sell at the moment is that we had a reasonably
unchanged FOMC meeting last week and we are also about to enter into another round of quarterly reporting season. I
went through the Dow Jones names each individually, adjusted their market cap weighting, looked at their price to
earnings ratios and market expectations around their earnings. I then multiplied index weighting by earnings growth to
find the most statistically significant companies to report for the Dow Jones to maintain its current high levels. I highlighted
these, most of them will start reporting in a couple of weeks. There could be disappointment out there in the market.
It’s also worth noting that the riskier elements of the market have already started falling. For example, the Nasdaq
Biotechnology sub index was down around 4% on Friday as many names struggled to hold onto their recent gains. The
index has now completely given away its 2014 gains, admittedly after running very hard last year.
Very few traders successfully pick the top or bottom of markets. I’m not trying to be a hero who wants to pick the market
top. I just feel that the Dow Jones can fall by around 8-10% over the next few months while the overall market remains in a
decade long overall upward trend. It’s nice to be able to capture this pullback. I’m willing to accept a 2% move against my
position if I’m wrong, back to record high levels on the market. My risk reward on this trade will be around 1:5 which is
very reasonable. If the market falls by more than 10%, I’ll continue to ride my position and adjust my stop loss on a trailing
basis. My target for the Dow Jones on this trade is around 14,985 based on the technical analysis below. Our technical
analysis shows resistance at around 16,650 but I’ll round this up by another 100 points to set my stop loss level which is 2%
away from the current spot price as I write.

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Figure 1, US30 Daily, Source: Invast MT4
In conclusion I reiterate the fact that I’m not trying to call the top of the market here, I just like trading risk reward probabilities going into
reporting season. Over the medium term I am more bullish than bearish, I continue to look for buying opportunities but I just feel the risk
reward payoff on the Dow Jones at the moment favours a Sell trade with a time horizon of around four to six weeks. The market should find
some solid support at around 15,700 or so which is where the 200 moving average is currently sitting.
We hope this is the most insightful piece of research you read this week. These are our initial impressions only, please make sure you read
all disclaimers at the bottom of this document carefully. If you would like to discuss further, please feel free to contact me on the details
below.

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2.0 David Jones valuation summary
Many clients have asked what we think of the David Jones takeover offer – is it a fair price, is it fully valued and if we think it is likely to proceed
successfully. We completed a valuation review once the news came out, as per the screen shot and notes below.

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Normally we wouldn’t publish our valuation thoughts in this way but the image above shows our working – just
like in high school or university where each line is required in order to get full marks for answering the question.
We want you to learn our way of thinking. It’s not all about fancy charts and computer models, sometimes
business valuations are as simple as this image below. We attach our notes and why each calculation is performed.
The whole point here is that the David Jones offer is reasonable, basically in line with the type of ballpark
premium you would expect from a foreign company to get the deal over the line. If we assume the 18.8x times
multiple is correct, that would represent roughly a 30% premium to a 14.5x price to earnings ratio which is really
where David Jones should be trading.
This explains why the Board has endorsed the offer and entered into an arrangement to get things rolling. We
think the South African listed Woolworths group who pitched the deal knows very well the property valuation
upside to David Jones’ portfolio and has figured if it can successfully divest these assets there would be some nice
surplus cash available to recycle back into the business. It took us five minutes to come to this view, based on the
calculations above. Our aim is to get you thinking the same way. We will continue to provide similar type of
analysis – outside of the ‘usual’ analysts notes some of you might have been accustomed to by now.

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3.0 Technical outlook on Yen crosses
In the last report we talked about potential exhaustion of the upside momentum on the AUD/JPY,
with resistance between 96.50 and 97.50. The pair did hit 96.50 and immediately found itself
rejected by the level. While our longer term view for the pair is still to the upside, as with any rally a
correction in the market is inevitable. This week we are anticipating this correction to occur.
Short term outlook - The rejection at 96.50 is within 10pips of the Daily 161.8% Fibonacci Extension
and being a psychological level, we had anticipated some loss of momentum due to profit taking to
occur around this level. We also noted AUD/JPY reliance on AUD/USD strength for guidance and the
lack of momentum in AUD/JPY in the past week is directly tied to the sideways movement in
AUD/USD between 0.9200 and 0.9300. A technical correction could be triggered by a daily close
below 95.25, where the current 23.6% Fibonacci retracement is located. Support to the downside is
located at 94.50 where the 38.2% Fibonacci retracement is located, followed by 93.85, where the
50% Fibonacci retracement and the Ichimoku kijun-sen overlaps.

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Stochastic oscillator is also coming off the 80 level, a sign that the pair is becoming overbought and due for
a technical correction. Overall in the medium-short term, the trend remains to the upside. This is evident
from price above the Ichimoku cloud and the chikou-span indicating a bullish sentiment in the market
compared to 26 days ago.
Figure 2, AUD/JPY Daily, Source: Invast MT4

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Long term outlook - Changes in the short term outlook are very important for our longer term outlook, more so than ever. First of all,
the 50% retracement level of the drop in 2013 at 96.00 remains a key resistance that has not seen a weekly close above it. The
second concern is the formation of the candle, if AUD/JPY remains within the range of 95.00 and 96.00 this week; a bearish Harami
pattern could develop on the weekly chart.
While the pair is now trading above the Ichimoku cloud on the weekly chart, Ichimoku cloud is relatively thin until the first week of
May 2014. A move below the Ichimoku cloud support (currently located between 92.70 and 93.80) could see the pair reverse all its
gains. We are holding off judgement of the longer term view for the AUD/JPY and change our view from bullish to a slightly more
neutral stance. We need a convincing close above 96.00 on the weekly chart for our bullish view to be reinstated.
Figure 3, AUD/JPY Weekly, Source: Invast MT4

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Strategy for the week - Because of our neutral stance on the longer term view, we want to focus on the short term strategy. Since we
expect a technical correction to occur, we prefer to go long on bounces from support around the Daily Kijun-sen and 50% Fibonacci
retracement (refer to figure 4 on the next page), with stop loss just slightly below the 61.8% Fibonacci retracement at 93.00. Target
will be an extension of the correction and we are looking for a potential push towards 97.00. Please refer to Figure 4 below for all the
key levels on the strategy for the week.
Figure 4, AUD/JPY Daily, Source: Invast MT4

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4.0 Upcoming client only webinars
We are holding four exclusive webinars this month for our clients only. If you are receiving this
report as part of a 4 week free trial campaign, you should contact an Invast account manager and
organise to become a client before registering. These webinars are very unique and put together
based on feedback from our clients. Make sure you register to avoid disappointment; we have
recently seen a huge surge in the demand for these sessions. Some have been over booked! Spots
are strictly limited to the first 100 registrants in each webinar.

15. 1515
Six hidden gems the pros are buying: The smart money often targets certain opportunities, getting
in a year or two before big results are reported. These investors look for key criteria which Invast’s
Peter Esho has recently implemented. Join Esho as he walks through his recent list of hidden gem
opportunities, businesses which he thinks will grow in earnings and become loved by traders and
investors within the next few years. While most of the market is focused on the big names that
sometimes don’t go anywhere, the smart money is starting to move into these stocks. Don’t miss
this opportunity to take part. Tuesday 15 April 2014, click here to register.
Reduce your investment worries in 5 minutes: Worry is a part of life whether you’re investing in
stocks, currencies, property or running a small business. Reducing worry can boost your
performance and take you to the next level. But how? Join Invast’s Chief Market Analyst, Peter Esho,
as he walks through the habits observed from successful investors, those who have an ability to
reduce their worries and focus on performance. Esho will talk through the key tips and tricks he has
learnt from these investors and passes on these valuable qualities to you in this rare and exclusive
webinar. Tuesday 29 April 2014, click here to register.

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Invast’s new daily Forex podcast
If you are interested in listening to our daily Forex strategy video’s but prefer to do it via a Podcast,
then be sure to subscribe to our new iTunes podcast channel. Podcasts are a great way to get all the
key information and strategy calls whilst you are travelling to and from work or at any time you are
out and about.

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How to access our new iTunes podcast channel:
1. Open up your podcast app on your iPhone.
2. Click on the search button and type in either of the following:
A. Invast
B. The Forex indicator
3. View the image below for details on how to do this or go to www.invast.com.au/itunes

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Go to www.invast.com.au/insights to get a
complimentary 4 week trial and receive the latest
insights as they are published to our live clients.

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Disclaimer
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20. 2020
Risk Warning: It's important for you to read and consider the relevant Product Disclosure
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