Market Matters Report / Market Matters Weekend Report 11th June 2016

By Market Matters 11 June 16

Market Matters Weekend Report 11th June 2016

Market Matters Weekend Report 11th June 2016


This week marked the second consecutive week of losses for the ASX 200 – albeit it was down only -0.12% in aggregate. The more meaningful level however was the weeks high point which came in at 5394 before we saw the market close at 5318 on Friday. Another test of 5400 resistance and yet another fail. For now the market looks likely to fall back into the range (4800 to 5400) before another test of the 5400 level – most likely after June 30. First short term target on the downside would come in at 5200.

ASX200 Weekly
US Stocks were also down for the week - 0.15% for the S&P 500 with that index hitting a high 2120, -15pts or just -0.70% below it’s all time high.
We’ve been forecasting that the all-time high will be taken out, largely because of the amount of cash sitting on the sidelines and the need for institutional investors to chase performance. If we do continue to pullback from here, it’s unlikely to be a deep correction and will provide a short buying opportunity. For a big/deep pullback to eventuate, cash levels need to be lower and the majority need to be meaningfully invested. So, as we’ve called for a long time now, we’re looking for an eventual blow off top in U.S equities before a decent pullback – somewhere around 20%. In the short term, we expect some more downside before the final push higher plays out.     
S&P 500 Daily Chart  

The main issue locally – and the primary reason why we’re struggling to break through 5400 is simply valuation and lack of any meaningful earnings growth. The first chart below which is sourced from Shaw and Partners Research – looks at the 12 month forward PE of the market since October 2014.
The current PE of 16 is more than 1.5 standard deviations above the longer term average. In very simple terms, the market PE generally can’t stay at 16 for long. Either the market needs to pullback, or we need a meaningful upward revision to earnings expectations. Right now, earnings have bottomed by the look of it, and some upgrades are flowing through the material sector, but hardly enough to justify a multiple of 16.

Of course, the index is made up of 100 stocks, and as we saw this week, not all stocks are doing well, but equally true, not all stocks are doing poorly. Amcor (AMC) for instance, a stock we’ve traded in the past had a very weak trading update and was sold off aggressively – as it should have been
On the flip side, Energy stocks were well bid throughout the week as were Gold stocks, and these are two sectors we like and have been active in recently. That said, we’ve also maintained reasonably high cash levels so we can take advantage of opportunities when they present themselves.  

Thinking about the current backdrop with uncertainty (Brexit, elections, RBA, Fed, China, ECB….) it’s not hard to imagine higher volatility in the weeks ahead. Higher volatility generally means lower PE ratios and when we are not seeing a lot of earnings growth across the broader market, we need to be super-selective on our stock selection.

Standout technical chart of the week 
The Volatility Index; This chart could really come into play this week as we have a raft of big ticket items, which it seems the market is not positioned for. Complacency was very high last week however on Friday, we saw a big move in volatility relative to where it was, however the index is still only at 17.
On the macro front the June FOMC meeting in the U.S happens on Tuesday/Wednesday and although they’re unlikely to change rates, the commentary will drive markets. This follows a raft of Chinese data out Sunday 12/6 and the Bank of Japan meeting early in the week.
This recent period of low volatility has been driven by various central bank actions and therefore investors get complacent. When complacency is high, yield becomes even more attractive. For example, it creates to thinking of why get 2% in a Term Deposit when I can get 5% in a stock – which doesn’t really move much anyway. That thinking is clearly flawed . A rise in volatility would see this yield trade being unwound pretty quickly.

Complacency is clearly a risk this week ahead of some big ticket macro events. We’re looking for some weakness in the short term, before the U.S market pushes up and makes a big ‘blow off’ top which would be the catalyst for a deeper market correction.
What Matters this week
A weak open expected on Monday however the variable to this could come on Sunday with the release of Chinese economic numbers as outlined below.
As it stands, the SPI FUTURES are down -61pts

Potential Investing opportunities for the coming week(s)

The ASX tested the 5400 level again last week and failed. Given the macro backdrop this week caution is warranted before taking new positions. The large cap resource stocks (BHP & RIO) have been weak, and we expect weakness here after failing to trade through key levels last week. Another leg down seems likely.
We are watching any potential "tax loss" selling in June that may create buying opportunities.

As always, alerts via email & SMS will be sent if we take any action on our portfolio.

Potential Trading opportunities for the coming week

From a trading perspective markets are likely to remain yet again choppy next week in the local market with tax influenced trading. US stocks look poised for some short term weakness. Boring we know however the same call as last week still seems relevant.
It feels like a good week to be an observer rather than player. Often, patience more than activity can yield best results!
The Market Matters Portfolio:

 Our cash position sits at a healthy ~36% after recently selling  Regis Resources (RRL)

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

Chart 3 – ASX200 Daily Chart

Chart 4 - SPI (Share Price Index) Futures Daily 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 Monthly Chart

Chart 7b – The US 2-year Interest Rate Daily Chart

American Equities

Any 2-3% pullbacks can be bought using tight stops  We remain bullish in the medium term targeting fresh all time highs in 2016 . A clear break under 17,300 is required for the Dow to turn this view negative / neutral short term.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Russell 3000 Weekly Chart

Chart 10a – US S&P500 Index Monthly Chart

Chart 10b – US S&P500 Banking Index Monthly 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

European Indices have weakened which is no surprise with the BREXIT vote looming on Thursday June 23rd..

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

Asian & Emerging Markets Indices

Some obvious selling started to HIT Asian stocks towards the end of the week. China data out Sunday 

Chart 19 – Hang Seng Weekly Chart

Chart 20 – China Shanghai Composite Index Monthly Chart

Chart 21a – Emerging Markets MSCI ETF Weekly Chart

Chart 22 – Japanese Nikkei 225 Index Monthly Chart

Australian Stocks

Resource stocks look weak and there is the likelihood of another leg down. Price action last week was bearish for the miners. Energy & Gold stocks should be closely watched for opportunities. We are long Origin Energy (ORG) ideally looking for $6.20 however we may exit early  

Chart 23 – BHP Billiton (US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Weekly Chart

Chart 25a – Woodside Petroleum (WPL) Monthly Chart

Chart 25b – Origin Energy (ORG) 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 – Newcrest Mining (NCM) Monthly Chart

Chart 29 – Regis Resources (RRL) Weekly Chart

Chart 30 – Northern Star Resources (NST) Weekly Chart

Chart 31 – Market Vectors Gold ETF Daily Chart

Chart 32a – Commonwealth Bank (CBA) Quarterly Chart

Chart 32b – Commonwealth Bank (CBA) Monthly Chart

Chart 33 – ANZ Bank (ANZ) Monthly 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) Monthly Chart

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

Chart 38a – AMP Ltd (AMP) Monthly Chart 

Chart 38b – Henderson Group (HGG) 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 45b – REA Group Quarterly Chart

Chart 46 – Telstra Corp. (TLS) Monthly Chart

Chart 47 – Vocus Communications (VOC) Weekly Chart

Chart 48 – TPG Telecom (TPM) Monthly Chart

Chart 49 – Westfield Corp. (WFD) Monthly Chart

Chart 50– CSL Ltd (CSL) Monthly Chart

Chart 51 Ramsay Healthcare (RHC) Monthly Chart

Chart 52– Healthscope (HSO) Weekly Chart

Chart 53 - Ansell (ANN) Monthly Chart 

Chart 54 – Amcor Ltd (AMC) Monthly Chart

Chart 55 – Crown Resorts (CWN) Monthly Chart

Chart 56– Bellamys (BAL) Weekly Chart

Chart 57– JB Hi-Fi (JBH) Monthly Chart

Chart 58– Harvey Norman (HVN) Monthly Chart

Chart 59a– Australian Dollar (AUD) Monthly Chart

$AU has peaked and should move lower

Chart 59b– The $US Index Monthly Chart


Gold has  rallied very well from multi-year lows last December and hit our target. It becomes tricky this week given macro news from the US and likely impact this will have on the $US
Copper remains in a negative downtrend on a longer term basis 
Crude Oil looks set to continue with recent strength towards the $US60/barrel resistance area.
Iron Ore exploded recently achieving +$US70/tonne target, we are now neutral / negative. The technical target is fresh lows under $US38/tonne.

Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart

Chart 63 – Iron Ore Monthly Chart

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 11/06/2016. 5:00PM.
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