Afternoon Report / A tough week for stocks however we did outperform the US (ILU, AWC, REA)

By Market Matters 09 February 18

A tough week for stocks however we did outperform the US (ILU, AWC, REA)

Market Matters Afternoon Report 9th February 2018


A very big week on the desk comes to an end with the ASX 200 down by -4.63% in aggregate which is obviously a weak result however when we hold it up against the Dow Jones with an 8.88% decline on the week so far and the S&P 500 which was off by 8.54% for the 4 days, we should feel a little better about ourselves!  As we said in the weekend report last Sunday, we expect the Australian market to outperform other global bourses into any correction and that has certainly played this week by a large margin.  

Today the market finished down -52pts however that was up +52pts from the session lows on the ASX 200 – not a bad result. Financials found some love today with the banks very resilient, NAB closing higher while the others were down smalls. The big 4 only detracting -2.89points from the overall index  - not a bad result at all!

ASX 200 Intra-Day Chart


ASX 200 Daily Chart


Writing the AM report this morning, the DOW was down 400 – then 500 then 600 and finally finished down over 1000pts  implying another very significant bout of weakness on our mkt today. That weakness played out early with the SPI trading down -140pts at the low before decent buying stepped in and the mkt grinded higher throughout the session – so although we were weak in aggregate, buyers dominated much of the day. One of the interesting comments we made this morning which is worth re-printing for those that missed it – and it’s the main reason why we bought stock into today’ s weakness was around the movement in volatility overnight, and the fact it diverged with the mkt performance. The DOW was whacked another 1000pts trading down near the weekly low, yet the volatility index stayed well below the panic levels seen earlier in the week…settling at 33.46 versus the 50 weekly high.

Interestingly the Fear Index / Volatility (VIX) is trading significantly below the panic earlier in the week which adds to our confidence in the view that we are seeing a short-term buying opportunity in stocks.

Fear Index (VIX) Daily Chart


We saw the opposite of this play out before the recent market drop, where the market was grinding higher yet so too was the volatility index – implying something more sinister was at play. While we’ve been cautious the mkt for some time looking for a decent correction and holding high cash levels as a result, it’s hard to say we predicted the magnitude of the drop over such a short period of time – I doubt many did.

The more important aspect in all of this, is retaining flexibility across portfolios to ensure we have the ability to buy weakness as it prevails - we had this flexibility during the week and we added the following shares across the MM Portfolios on three different days – not all positions are showing gains yet however we’re comfortable with the approach. This morning we bought Iluka (ILU) and Alumina (AWC).  

Our activity this week



1.Market Performance; Looking at sectors, Energy was the biggest drag on concerns that higher rates will stifle growth (and demand for energy) while the defensive areas usurpingly did best – Real Estate and the like which is sort of counterintuitive given the reason for the mkt weakness was higher interest rates!!

Source; Bloomberg

Mineral Resources delivered a good set of numbers this week and that drove that share price higher, however v ’interesting to see the defensive qualities of Fortescue (FMG) with the stock coming up marginally higher on a torrid week.

Source; Bloomberg

Fewer stocks reporting today however we did see REA Group out with numbers + a few others while Myer dished up a 3rd downgrade…ouch!!!  

2.REA Group (REA) $72.97 / $2.04 – delivered a very good result today with underlying NPAT up 21% to $147.3m which was inline with expectations however the outlook was probably better prompting small upgrades – this is a stock priced on  a BIG multiple however it’s got huge pricing power, a main competitor that has just lost its CEO and main driving force (maybe) and it looks set to continue to deliver double digit growth.

REA Group Daily Chart





We bought Iluka & Alumina in the Platinum Portfolio today

Iluka Daily Chart


Alumina Daily Chart



Have a great night

James & the Market Matters Team


Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here  Positions are updated each Friday, or after the session when positions are traded.


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