Market Matters Report / Market Matters Report Saturday 22nd August 2015

By Market Matters 22 August 15

Market Matters Report Saturday 22nd August 2015

Market Matters Report Saturday 22nd August 2015

Afternoon All,

We extremely sorry that this week's positions went out without entry prices, this will be rectified asap both by email and on the website - the error occurred because we are in the process of upgrading this part of the service!

It's always nice to be right but in case of the stock market its never as exciting on the downside, we have been calling the ASX200 down to the 5200 area (when it was close to 6000) and a 12-15% correction in US equities - the ASX200 has arrived, the Dow is only 4% away and the S&P500 ideally has 7% further to fall. However, today's report has taken over twice as long to write as usual, not because equities have been falling as anticipated but because when the Dow falls over 1000 points in one week we must consider all the scenarios. It's unlikely that a lot of investors are excited by Mondays likely 100-point initial drop by the ASX200 BUT that works to our advantage. Undoubtedly we wish we had maintained our 35-40% cash holding until today but the capital we put into the market last week was at levels where we are comfortable and more importantly it was into solid companies that we like - picking the exact bottom over a major retracement is luck. Smart investing is all about identifying quality companies and the levels where you are extremely excited to own them. Let's consider some of the facts / views that should influence investors / traders next week:

  • The ASX200 has been aggressively sold off 13.8% from 2015 highs, along with the Emerging Market stocks on China Fears - The Emerging Markets Index is down 24% in 5 months - see chart 21 .
  • Currently this is the 3rd longest period in history that the S&P500 has not fallen 10%, so basically the current correction is currently a healthy one.
  • Our view is that the ASX200 is now excellent value, of course it may get a little cheaper, but we believe investors should be actively buying into this weakness.
  • China is slowing down, it's nothing everybody wasn't aware of a few years ago and that's why Iron Ore has fell over 75% from its 2010 crazy highs - interestingly its up over 25% from its low of 7 weeks ago and was even up last night.
  • Similarly Crude Oil has fallen over 60% since the highs of 2014 but as most subscribers have read recently Market Matters believe oil is a medium buy around this $US40/barrel area.
  • The dividend our capital strengthened banks are paying at Fridays closing prices is extremely attractive e.g. ANZ ~6.4% + franking credits and CBA ~5.5% + franking credits.
  • The current cash holdings in Australian are large and importantly leverage to equities is low implying capitulation will not occur.
  • When markets panic like last week we must "Keep it Simple Stupid" (KISS) and with the Australian stock market we believe it means buy solid companies that pay a good yield, will continue to do so but have been sold off with the overall market. The current low growth and low interest rate environment looks likely to continue for a while.

Our 6 Favourite conviction buys for next week:

1. ANZ - we are likely to add to our holdings under $28 - ANZ is down 23.9% from 2015 highs.

2. CBA - we are likely to add to our holdings in the $74 and $72 areas - CBA is down 21.5% from 2015 highs.

3. Macquarie - we like MQG very much around $72- MQG is down 13.4% from 2015 highs.

4. Ramsay Healthcare - we remain keen on RHC around the $58 area - RHC is down 12.7% from 2015 highs.

5. Santos - STO is obviously an aggressive investment / trade in the current environment but we are bullish around the $5.10 area- STO is down 39% from 2015 highs.

6. Telstra - TLS is good value around $5.90 prior to next week's 15.5c fully franked dividend - TLS is down 9.8% from 2015 highs.

Obviously potential cash allocation into these companies depends on a combination of risk profile, existing holdings and liquidity.
Any subscribers not familiar with codes or companies can check these on the ASX website: http://www.asx.com.au/ - See charts of all below.

Summary:

No major change here:

1. We now have our buyer's hat in place and are likely to start on Monday.

2. High volatility means that we will consider selling calls against portfolios / purchases - recommended for sophisticated investors only.

3. We continue to have no interest investing in the resources sector but trading opportunities continue to be targeted.

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

What Matters this week

The ASX200 looks likely to open down around 100-points on Monday courtesy of the Dows 531 point plunge.

Potential Investing opportunities for the coming week

  •  Hopefully investors are now sitting on a reasonable cash position awaiting buying opportunities – see above.
  • We are currently wearing our buyer's hat with CBA, ANZ, MQG, RHC, and TLS in our sights.

Potential Trading for the coming week

  • Short term is tricky but overall sell 100 point rallies for now..
  •  For aggressive traders and investors buy Santos.

Portfolio / Trade Holdings

Our portfolio had an ok week, with a few clear winners and losers plus a numbers of stocks trading ex-dividend, the overall market - the ASX200 fell 2.7%.

1. Ansell (ANN) +3.8% - medium term investment.

2. ANZ Bank (ANZ) -3.2% - medium term investment.

3. Challenger (CGF) +5.5% - medium term investment.

4. Commonwealth Bank (CBA) -7.6% - long term investment.

5. Seek (SEK) -9.8% - medium term investment.

6. Vocus (VOC) -4.4%- medium term investment.

7. Woodside (WPL) -3.9% - 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.

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 REIT Index Monthly Chart

Chart 5b ASX200 Banking Index Monthly Chart

Chart 5c 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 looked to have topped and the 12-15% correction we have been predicting is underway.

  • The Dow has already fallen over 10% and our predicted target is already looming under 4% away.
  • The more followed S&P500 has been stronger recently is over 7% from our targeted area haven only fallen 7.7% to date.

Chart 8 – Dow Jones Index Monthly Chart 

 

Chart 9 – Dow Jones Index Daily 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 with the plunging Chinese stock market and the Yuan being weakened. The Nikkei looks technically to be 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 but some industrial stocks 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 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 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