Morning Report / Market Matters Morning Report Friday 27th May 2016

By Market Matters 27 May 16

Market Matters Morning Report Friday 27th May 2016

Market Matters Morning Report Friday 27th May 2016


5 Moves We’re Considering Seriously As We Approach the End of a Tough Financial Year for Stocks
As you all know, we remain bullish US equities, targeting fresh all-time highs with a likely 5-10% further upside. If this view (illustrated below)is correct, there remains some opportunities for buyers with good stock selection and entry levels.  The US Memorial Day weekend is basically upon us and not surprisingly, markets have gone quiet, but  it's time to be on alert as markets often experience large moves at the start of the month and June starts next Wednesday.
We have been asked to clarify our anticipated investing moves during June so here are 5 plans currently on our radar at this moment in time.
S&P500 Monthly Chart

Primary Health (PRY) Monthly Chart

We are bullish PRY, targeting the $5 area. Normally we would simply allocate 5-10% into the stock, with a $3.20 stop. However, PRY is down over 28% over the last 12 months, making it an ideal candidate for tax loss selling in June, hence we are being patient at present and hopefully not too clever!
Spotless Group (SPO) Weekly Chart

SPO, the cleaning and catering company, has experienced a simply awful year falling over 50% in the last 12 months. We are considering an aggressive, but small position if the stock is crunched down towards 80c in June.
QBE Insurance (QBE) Monthly Chart

QBE has been a "landmine" stock more than once over recent years, but technically we like the stock at present, with stops under $11.50. The stock is down almost 15% over the last 12 months, hence if it underperforms noticeably in June, we are likely to take a small position plus / or allocate part of our Suncorp holding to the stock.
Lend Lease (LLC) Monthly Chart

LLC is not in a sector that we are particularly excited about at present, but it's been the large underperformer over the last 12 months, falling 17.9% and showing it can run its own race. We like LLC with stops under $12.30, hence will be looking to buy any tax loss selling in June to improve the risk reward opportunity.
Switching from CBA/WBC
CBA is only down 6.2% and WBC 6.9% over the last 12 months, compared to a whopping 21.5% for ANZ, 16.5% for BOQ and 15.6% for NAB. It's very simple, if any of these 3 underperforming banks get hammered on a relative basis in June due to tax loss selling, we are likely to switch into them from CBA and / or WBC.
Over June we are considering buying PRY, SPO, LLC, QBE and switching from CBA / WBC within the banking sector.
Lastly, over recent weeks we have had a few subscribers request more coverage of the small-mid cap space. This is no surprise to us considering the relative outperformance from the sector over recent times and something we are looking to address. Market Matters started out with its focus clearly on the ASX200 and although we have had enjoyed wins from smaller stocks like Vocus (not in the ASX200 at the time), it has definitely not been our area of expertise. You will be pleased to know we are looking at expanding into this sector, but finding the correct calibre, people may take a little time. Like with the markets, please be patient.
Watch for Market Matters alerts.

Overnight Market Matters Wrap

  • The US Markets were quiet ahead of what is expected to be a dovish talk by Janet Yellen when she accepts an award tonight in the US. The Dow finished down just 23 points closing at 17,828 whilst the S&P500 closed square at 2,090.
  • Oil was as usual, closely monitored last night. The price managed to rally above US$50/bbl during the day, but drifted lower to close down 8c to US$49.48/bbl.
  • Gold lost ground last night losing US$3.40 to US$1,220.10/oz on strength in the US$ on perception that the US will raise interest rates. Federal Governor Jerome Powell was speaking last night and said that the US would raise rates if the economy continued to show signs of improvement.
  • The June SPI Futures is indicating the ASX 200 to open just 6 points higher this morning, around the 5,394 level.
The Market Matters Team
Level 12 28-34 O'Connell St
Sydney, NSW 2000.

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