Market Matters Report / Market Matters Report Saturday 12th September 2015

By Market Matters 12 September 15

Market Matters Report Saturday 12th September 2015

Market Matters Report Saturday 12th September 2015

Good afternoon everyone,

Overview

Well, another fascinating week in the global markets. Traders and investors alike have been oscillating daily between enthusiasm and despair. However, we have not wavered from our view that the market is one of patience where we stand back and not be embroiled in the emotional swings currently taking place.

The coming week is likely to be all about waiting for the Fed; do they or don't they raise interest rates next week, on the 17th. US consumer sentiment tumbled in September, with the stock market weakness a contributing factor, reducing the possibility of a rate hike this month and possibly pushing out to December.

At Market Matters we have been of the view that the Fed would indeed raise rate but after last week's economic data we are now more 50-50 whether they press the button now or later in the year. However, if its next week, or another month in the near future, the clear point is this it is a seismic shift in US policy and very likely to be the beginning of the end of incredibly cheap money on a global front - see charts 7a & 7b.

Importantly the trend as companies have to start refinancing debt will become "cash is king" and debt a problem. Hence, going forward companies with positive cash flow and decent cash levels on their balance sheets should outperform.

Australia is looking far more likely to continue lowering rates, similar to New Zealand, and this should support our strong companies paying sustainable yield.

Ironically last week was the best week since March for US equities (+3%) but the ASX200 only managed to bounce 31 points after being savaged over 4% the previous week.

At the end of last week global investment bank Goldman Sachs issued a warning that Australia faced a 30% chance of slipping into recession, not good news for attracting foreign monies into Australian assets. We will be keeping one eye on Canada here as it has a very similar economy and demographic to Australia.

Turning to the Market

  • "Cash is king" has clearly not been the case for Woodside (WPL) after its bid for Oil Search last week which makes little sense, we would always prefer to own companies in cash buying distressed assets not companies being forced to sell. Nevertheless, it would seem illogical for the bid to have been made without some sort of blessing of the PNG government so there are likely a few games to be played here yet!
  • At Market Matters we have also been calling a rally in oil towards $US60/barrel. This, in theory, should also support WPL. A very similar situation to the accurate low we called in Iron Ore - see charts 62 & 63.
  •  We remain in a "glass half empty" frame of mind. However, sentiment can turn quickly! When we study the Dow Jones and if history repeats then, after a few more weeks volatile consolidation, October is likely to end strongly  - see chart 9.
  •  We continue to believe there is a 50-50 possibility that US equities will see fresh lows for this correction and that any test / break under 4900 for the AX200 represents an excellent buying opportunity.
  • Potentially Australia may receive another interest rate cut to 1.75% and maybe even consider another to add fuel to the potential for a Christmas rall; an exciting mix for equities.
  •  Our favourite 9 stocks at currently remain, in alphabetical order and with ideal buying levels in brackets are:  AMC ($13.10), ANZ ($26.20), CBA ($71), CGF ($6.70), CSL ($86), MPL ($2.23), MQG ($70), RHC ($58) and SUN ($11.80).
  •  On the resources front we are becoming impatient for our anticipated countertrend gold rally and will be watching very carefully the price action around the interest rate decision.
  • Finally we remain short term positive resources for a "tradeable bounce", the sector is gaining strength and for the believers in full diversification we would still advocate the large caps - BHP, RIO, WPL, OSH and FMG.

 Summary: 

Our view on the market action for the coming week is similar to that which we have been saying all this week, that is, the market is providing some strong trading and investment opportunities but one needs to be selective. While the ASX200 low of 25th August is an extremely strong low there remains the possibility of a short downwards spike. Should this occur then it would be a buying opportunity for a decent rally into November and December.

  

* Watch closely for Market Matters alerts via SMS and email.

 

What Matters this week

 The ASX200 looks likely to open up 20 points on Monday after the 102-point rally by the Dow.


                                           Potential Investing opportunities for the coming week

  • Hopefully investors put some capital to work into the panic on August 25th, we would aggressively add to purchases in the 4900 area.

                                          Potential Trading for the coming week

  • Short term we believe the best trading action is also to now stand back and look to allocate any remaining capital to the market if the ASX200 retests the 4900 area.

Portfolio / Trade Holdings

 

Our portfolio had an average week with ANN, and WPL after its bid for Oil Search, undoing the positive work elsewhere - the ASX200 bounced a meagre 0.6%overall.

 1.      Ansell (ANN) -4.6% - medium term investment.

2.     ANZ Bank (ANZ) +2.5% - medium term investment.

3.      Bendigo Bank (BEN) -0.6% - medium term investment.

4.     Challenger (CGF) +1.9% - medium term investment.

5.     Commonwealth Bank (CBA) +4.1% - long term investment - may be weak early next week when it resumes trading after final placement of shares for its capital raising.

6.     Seek (SEK) -1.4% - medium term investment.

7.     Vocus (VOC) +3.6%- medium term investment.

8.     Woodside (WPL) -7.1% - medium term investment.

  ·       Cash for future purchases, +15%.

 

Australian ASX200

 We continue to look to spread our investments into a more diversified portfolio with sustainable yield in an environment where cash not debt is likely to be king.

  

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

Chart 3 – ASX200 Daily Chart

Chart 4 - SPI (Share Price Index) Futures 60 mins Chart

Chart 5a ASX200 Banking Index Monthly Chart

Chart 5b ASX200 Financials Index (excl. REIT's) Weekly Chart

 Chart 6  Volatility Index VIX Weekly Chart

Chart 7a – The US 10-year Interest Rate Quarterly Chart

Chart 7b – The German 10-year Interest Rate Quarterly Chart

 American Equities

The American indices finally had our anticipated correction, albeit very sharply so some sideways price action is likely short term.

  •   The Dow has already exceeded predicted target.
  •   The more followed (by market observers and participants) S&P500 has been relatively stronger and to date has fallen 2% short of our target.

  Chart 8 – Dow Jones Index Monthly Chart

 Chart 9 – Dow Jones Index Weekly Chart

   Chart 10a – US S&P500 Index Monthly Chart

 Chart 10b – US S&P500 Index Weekly Chart

Chart 11 – NYSE Composite Index Monthly Chart

Chart 12 – Russell 2000 Index Monthly Chart

 Chart 13 – US NASDAQ Index Monthly Chart

Chart 14 – The Canadian Composite Index Monthly Chart

 European Indices

Most European Indices appear to be in the middle of a decent correction with clearest leads coming from the UK's FTSE and Spanish IBEX.

  Chart 15 – Euro Stoxx 50 Index Weekly Chart

Chart 16 – UK FTSE Index Weekly Chart

Chart 17 – Spanish IBEX Index Monthly Chart

 Chart 18 – German DAX Index Monthly Chart

Chart 19 – German DAX Index Weekly Chart 

 Asian & Emerging Markets Indices

Asian indices have been extremely volatile over recent months in sympathy with the plunging Chinese stock market and weakness / devaluation of  the Yuan. The Nikkei looks to be technically set for a decent correction.

  Chart 20a – Hang Seng Weekly Chart

Chart 20b – China Shanghai Composite Index Monthly Chart

 Chart 21 – Emerging Markets Index Monthly Chart

 Chart 22 – Japanese Nikkei 225 Index Monthly Chart

 Australian Stocks

  Quality stocks with sustainable yield have been standouts over recent times but some industrial and finally resource stock are now looking better. We are now a buyer of the “yield play” after its 18-20% correction and looking to invest in growth / overseas earning stocks BUT not resources. 

However, we're no longer bearish the resources sector from a risk / reward trading perspective.

  Chart 23 – BHP Billiton (US) Monthly Chart

 Chart 24 – BHP Billiton (BHP) Weekly Chart

Chart 25a – Woodside Petroleum (WPL) Weekly Chart

Chart 25b – Santos (STO) Weekly Chart

Chart 25c – Oil Search (OSH) Weekly Chart

 Chart 26 – RIO Tinto Ltd (RIO) Weekly Chart

Chart 27 – Fortescue Metals (FMG) Weekly Chart

 Chart 28 – Vale (US) Weekly Chart

Chart 29 – Newcrest Mining (NCM) Monthly Chart

Chart 30a – Regis Resources (RRL) Weekly Chart

Chart 30b – Northern Star Resources (NST) Weekly Chart

Chart 31 – Barrick Gold Corp. (US) Monthly Chart

Chart 32a – Commonwealth Bank (CBA) Quarterly Chart

Chart 32b – Commonwealth Bank (CBA) Monthly Chart

Chart 33a – ANZ Bank (ANZ) Monthly Chart

Chart 33b – ANZ Bank (ANZ) Daily Chart

Chart 34 – Westpac Bank (WBC) Weekly Chart

Chart 35 – National Australia Bank (NAB) Weekly Chart

Chart 36 – Macquarie Group (MQG) Monthly Chart

Chart 37a – Bank of Queensland (BOQ) Weekly Chart

Chart 37b – Bendigo & Adelaide Bank (BEN) Monthly Chart

Chart 38 – AMP Ltd (AMP) Weekly Chart

Chart 39 – Challenger Financial (CGF) Monthly Chart

Chart 40 – Suncorp Group (SUN) Monthly Chart

Chart 41 – Insurance Australia (IAG) Monthly Chart

Chart 42 – QBE Insurance (QBE) Monthly Chart

Chart 43 – Wesfarmers Ltd (WES) Weekly Chart

Chart 44 – Woolworths Ltd (WOW) Quarterly Chart

Chart 45a – Seek Ltd (SEK) Monthly Chart

Chart 46 – Telstra Corp. (TLS) Monthly Chart

Chart 47– M2 Group Ltd (MTU) Monthly Chart

Chart 48a – Vocus Communications (VOC) Weekly Chart

Chart 48b – TPG Telecom (TPM) Monthly Chart