Morning Report / Market Matters Morning Report Thursday 12th May 2016

By Market Matters 12 May 16

Market Matters Morning Report Thursday 12th May 2016

Market Matters Morning Report Thursday 12th May 2016

 

Volumes fall, volatility rises can equal opportunity
 
The Volatility Index (VIX) has risen marginally over the last few years and has proven very capable of spiking to extreme levels very quickly as we witnessed last year over China growth concerns - see chart 1. However volumes of the majority financial instruments have collapsed over the same period e.g. the volume of shares traded in the US has fallen 23% since the start of the year, the turnover of Treasuries has fallen back close to the depressed GFC  levels and the average FX volume has dropped 20% over the last 18 months.
 
Whether the fall off in activity is due to increased regulation since the GFC or investors nervousness with the current market / economies is open for debate but the resulting outcome is not. Lower volumes can be both exciting and dangerous as they lead to increases in short moves for stocks e.g. Fortescue has swung both up, and down, over 20% in a matter of weeks.
 
Volatility (VIX) Index Weekly  Chart 
 

Yesterday we woke to see the Dow up over 200 points and today it’s down over 200 points, clear uncertain choppy volatility. This tremendous volatility is good news for high conviction investors, like ourselves, who can potentially take advantage of big swings in stock prices e.g. yesterday Bellamy's that we own rallied 8%. Simply when markets have big swings individual stocks can have large moves generating both entry and exit opportunities.
 
We often discuss "setting traps" at certain levels in stocks we want to buy, in perfectly efficient markets these "cheap, good risk/reward" levels will rarely be achieved but when price swings become exaggerated opportunities arise for the nimble e.g. we purchased ANZ under $23 on the 3rd of May only to enjoy the stock closing at $25.05 on the same day - we apologise to subscribers who missed that particular alert as the window was only open for a matter of minutes.
 
The US S&P500 continues to unfold largely as we have been forecasting with the next corrective leg down looking to have started last night. Our target for this retracement is the 2010 area, or 2.5% lower, over the next few weeks. If we are correct this should become the springboard for US equities to rally to new all-time highs. We will observe the next few days very carefully because acceleration to the down side would threaten this view.
 
US S&P500 Index Daily Chart
 

Locally the ASX200 looks to have created a short term top yesterday, 3 weeks after the US courtesy of our huge sector rotation i.e. banks / resources. When we look at the short term futures chart, which generally leads the ASX200, it will generate a technical sell signal on volume and a close under 5330. This sell signal would target another test of the 5150 area ~3.5% lower, we will watch this very carefully as after taking profit in Healthscope (HSO) yesterday we have an aggressive cash holding ~45%.
 
SPI Futures 60 mins Chart
 

Summary
 
We remain bullish equities for 2016 assuming the current correction in the US does not accelerate over the next few weeks. Our cash holdings are high at present and ideally we will be looking to buy stocks ~5150 in the ASX200 in coming weeks. The increased volatility from individual stocks is creating opportunities for both buyers and sellers and we will be discussing our targeted stocks in coming reports.
 
Overnight Market Matters Wrap
 
  • The US equity markets gave back its recent gains overnight as investors anticipate a lower growth rate in consumer spending after disappointing numbers on retailer, Macy’s.
  • The Dow closed 217 points lower (-1.2%) at 17,711, while the broader S&P 500 closed 20 points lower (-1%) at 2,064.
  • Oil continues to rise, with crude oil ending 3.5% higher at $46.23/bbl, while Gold Futures rose a modest 0.8% higher to US$1,274.60/oz.
  • The June SPI Futures is indicating the ASX 200 to open 40 points lower this morning, above the 5,330 area.



Regards,
The Market Matters Team
Level 12 28-34 O'Connell St
Sydney, NSW 2000.
 

All figures contained from sources believed to be accurate.  Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy.  Prices as at 12/05/2016.  8:30AM.
 
Reports and other documents published on this website and email (‘Reports’) are authored by Market Matters and the reports represent the views of Market Matters. The MarketMatters Report is based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.
 
The Reports contain general, as opposed to personal, advice. That means they are prepared for multiple distributions without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of a financial advisor.  Market Matters or its author(s) accepts no responsibility for any losses or damages resulting from decisions made from or because of information within this publication. Investing and trading in financial products are always risky, so you should do your own research before buying or selling a financial product.
 
The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports.
 
If you rely on a Report, you do so at your own risk. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.


To unsubscribe. Click Here

 

 

 
 
 


Close

UNLOCK ALL CONTENT FREE

No credit card required
Accept the T&Cs