MARKETS SPECTATOR: DJs downside

Traders are betting on a weaker than expected result from David Jones, with the retailer's stock changing hands on strong volumes.

* This column was written before David Jones' announcement of a 39.9 per cent fall in profit, to $101.3 million, for fiscal 2012.

With little else due in the domestic market today and following a very quiet overnight session, traders will be eyeing David Jones’ full-year 2012 earnings release. Everybody knows retail in Australia has been doing it tough and David Jones certainly hasn’t escaped the heat. Leading up to today’s announcement, David Jones has underperformed quite significantly, especially when compared against the broader S&P/ASX 200 index and S&P/ASX Consumer Discretionary sector. It’s down more than 8 per cent since the 7/9/2012 versus a gain of 1.3 per cent for the benchmark index and a fall of only 1.8 per cent for the discretionary sector.

So what does this tell us? Well, since Myer reported its full-year results five days ago David Jones is down close to 4 per cent. Obviously traders believe the headwinds Myer encountered are likely to batter David Jones as well, hence the sell down. Traders are clearly betting on a weaker-than-expected result.

Given the stock has fallen quite hard ahead of the result, and on pretty good volumes too, we may see a sell the rumour, buy the fact scenario play out. This, of course assumes the result comes roughly in line with expectations and isn’t a complete disaster. On the flipside, a stronger-than-anticipated number could easily see an exaggerated reaction to the upside as the traders who got it wrong and shorted the stock look to exit losing position.

Turning our attention to the overnight session, it was fairly lacklustre as the benchmark indexes closed the session narrowly mixed as euphoria created by last weeks stimulus announcement continued to wear off. With very little on the data front, FedEx and Apple created the headlines as the technology giant continued its move north of the $US700 level while FedEx reported slightly stronger-than-expected quarterly earnings. However, the stocks retreated 3.1 per cent as it cut its profit estimate for 2013.

The Dow Jones Industrial Average was the best performer, adding 0.1 per cent while the NASDAQ finished unchanged and the S&P 500 0.1 per cent softer.

Outside of the action in David Jones, it’s going to be a fairly subdued trading session domestically given the US leads and lack of material announcements due during the Australian session. Based on overnight futures moves, the S&P/ASX 200 index looks likely to open around 0.2 per cent firmer at 4396.

Materials names, which have led the market in recent sessions are likely to take a bit of a breather after modestly lower peers in the US and UK. BHP Billiton’s ADR is pointing towards a decline of 0.3 per cent on the open while Rio Tinto fell 0.7 per cent in London trade. Base metals markets were mixed at best, although the much talked about iron ore price has continued its rebound, adding another 4.4 per cent overnight to $US109.60/t. No doubt Fortescue Metals Group will continue to be in focus today; we’re probably likely to see more gains as traders who had shorted the stock still try to exit with their shirts on.

In summary, it’s looking like a pretty quiet start to Wednesday’s trading session, with very little in the way of market moving data expected, although we do have the honour of listening to the second speech from an RBA assistant governor in as many days; that is due at 1050 AEST.

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