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

By Market Matters 11 September 16

Market Matters Weekend Report 11th September 2016

Market Matters Weekend Report 11th September 2016

Bang, the market slumber appears to over with the Dow falling almost 400-points (2.1%) on Friday night as investors became concerned that central banks are becoming ineffective and US interest rates are likely to increase sooner rather than later. Prior to last night the Dow had traded in its tightest range in recorded history, hence there's no surprise that the break out from this range was very savage. Mario Draghi, President of the European Central Bank (ECB), lit the fuse earlier in week by downplaying the requirement for further stimulus and last night Fed Bank of Boston President came out saying that the window to raise US rates should not be missed - markets are now factoring in a 60% chance that the US raises rates this year, we believe it should be much higher.
Last night US 10-year notes reached their lowest level since June, this move higher in rates coincides with our concern for the bond market and belief that interest rates have bottomed in most / all of the developed world. Not surprisingly the higher yielding stocks were the hardest hit with the Real Estate Investment Trusts (REIT's), quasi-bond stocks and Telco's leading the decline. Locally it's hard to imagine interest rate increases until our economy demonstrates some ongoing strength and probably more importantly the $A is well back under 70c, but more rate cuts are potentially too optimistic.
We continue to remain bearish stocks like Telstra (TLS), Sydney Airports (SYD) and the REIT's that are very likely to be pressured by rising interest rates, as opposed to banks which should benefit by increased margins - over the last month banks are -0.3% but Telstra -9.6%, SYD -7.3% and the REIT's -2.6%.
NB When Bonds / Notes fall in price interest rates rise, it's an inverse relationship.

US 10-year Interest Rates Monthly Chart
Firstly let's turn our head to US equities to assess the risks that the +20% correction we have been forecasting has commenced earlier than we anticipated. The US S&P500 is are only 3% below its all-time high hence if it's going to decline a further 15% it's definitely not too late to sell / reduce equity exposure. Last night's drop hardly registers a blip on the longer-term monthly charts of the US Indices BUT we are very wary as they made the fresh all-time highs in 2016 that we forecast.
If the NASDAQ trades through 4620 we get a technical sell signal that should not be ignored i.e. a further 1.3% lower.
Overall it feels like two scenarios may play out from here with very different implications:
1. This is a knee jerk reaction to the inevitable end to Quantitative easing and the break out of a very tight trading range. If this is the case we should see no major follow through next week and an eventual rally back over 2200.
2.  US stocks have completed their bull market advance since 2009 and a 15-20% decline has commenced.
While just looking at the US market here we are 50-50, the concern is clearly the move lower is likely to be of greater magnitude than any rally from current levels.
US S&P500 Monthly Chart

NASADAQ Monthly Chart
More importantly for most subscribers lets now move on to the shaky local ASX200 - even after Fridays 2.1% fall the S&P500 is only down 3% from recent all-time highs BUT the ASX200 is likely to open ~6.5% below its August high on Monday morning. Technically we have to now conclude that the local market has broken down unless it can close back over 5370.
Investors should look to reduce exposure into any strength, a 100-point bounce is likely over coming weeks BUT from what level is the big question.
Importantly during the last 2 major corrections for stocks in 2015, and 2016, we stood up and were aggressive buyers, this is NOT the case today as the risk / reward from US equities is not compelling at current levels.
Share Price Index (SPI) 60-mins Chart

ASX200 Daily Chart

Standout technical chart of the week
Woolworths looks to have failed after its dramatic 28% rally at the end of August. A fall back under $20 is now looking likely, potentially under $19, this would present an excellent risk / reward buying opportunity.
Woolworths (WOW) Weekly Chart

We are 50-50 on overseas equities but believe the ASX200 has formed a major top at 5611 and hence will be looking for selling opportunities accordingly.
US equities have reached  fresh all time highs, our strategy remains clearly defined - we are wearing our "Sellers Hat" looking to lighten equities exposure into strength - the urgency on this front has increased.
What Matters this week
The ASX200's is set to down 80-90-points on Monday, we are now bearish this market until further notice and will be watching bounces for selling opportunities.

Potential Investing opportunities for the coming week(s)

We are comfortable with our general asset allocation but obviously wish our cash levels were over 20%, we will reduce index exposure if decent opportunities present themselves.

Sophisticated investors should use current high volatility to write calls over portfolios to increase yield and protect against some downside.

Potential Trading opportunities for the coming week
We are now bearish this market until further notice and will be watching bounces for selling opportunities.
* Watch out for trading alerts.
Portfolio / Trade Holdings
The Market Matters Portfolio:
We are happily overweight the banking and energy sectors at present but not our overall market exposure with a cash holding of only 3.5%.
Australian ASX200
The ASX200 has had very poor 2 weeks which looks highly likely to be extended after Fridays large fall on Wall Street. Unfortunately the market has now broken down technically and would need to close over 5370 to look ok.
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 Monthly Chart

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

American Equities

American indices showed significant signs of cracking on Friday night when the Dow fell almost 400-points (2.1%). Longer term the move still looks like no more than a blip BUT because its after fresh all-time highs in the Dow, S&P500, Russell 3000 and NASDAQ much caution is warranted - note the NYSE Composite and Russell 2000 Indices did not make fresh all-time highs in 2016. The NASDAQ will generate sell signals on a break under 4620.
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 Index Monthly Chart

Chart 10c – US S&P500 Banking Index Monthly Chart

Chart 10d – US S&P500 Healthcare Index Quarterly 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
Overall European indices are tricky and neutral at present.
Chart 15 – Euro Stoxx 50 Index Monthly 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

The Asian indices remain positive and clearly the strongest region at present.
Chart 19 – Hang Seng Weekly Chart

Chart 20 – China Shanghai Composite Index Weekly Chart

Chart 21a – Emerging Markets MSCI ETF Weekly Chart

Chart 22 – Japanese Nikkei 225 Index Monthly Chart

Australian Stocks

The Australian stock market remains weak and may have actually formed a significant top at 5611.
Chart 23 – BHP Billiton ADR ($
US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Weekly Chart

Chart 25a – Woodside Petroleum (WPL) Monthly Chart

Chart 25b – Origin Energy (ORG) Monthly Chart

Chart 25c – Oil Search (OSH) Weekly Chart

Chart 26 – RIO Tinto Ltd (RIO) Weekly Chart

Chart 27 – Fortescue Metals (FMG) Monthly Chart

Chart 27b – Independence Group (IGO) 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) Daily Chart

Chart 33 – ANZ Bank (ANZ) Weekly Chart

Chart 34 – Westpac Bank (WBC) Daily 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 – Sydney Airports (SYD) 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) Weekly 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

The $A has struggled since 2011 as markets question the strength of the Australian economy post the commodities boom. A significant part of the recent bounce from the 68c area has been courtesy of a weaker $US. Longer term we are eventually targeting the ~65c region BUT the short term relative strength looks likely to continue and frustrate the RBA - we are potentially targeting ~81c from this bounce.
The $US is 50-50 just here but a kick over 102 would complete a classic advance structure, perhaps fresh signals of Fed rate hikes ahead can fuel this advance - signals remain very choppy on this front.

Chart 59b– The $US Index Monthly Chart


Gold has  rallied very well from multi-year lows last December but has reached our initial target area hence short term caution is warranted.
Copper remains in a negative downtrend on a longer term basis targeting prices over 20% lower.
Crude Oil still looks set to continue the recent strength towards the $US60/barrel resistance area after what currently looks like a completed pullback, a break back under $US40/barrel would question this interpretation.
Iron Ore achieved our +$US70/tonne target, technically we are now neutral / bearish.
Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart

Chart 63 – Iron Ore Monthly Chart

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 11/09/2016. 9:00AM.
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