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

Overview
 
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
 

 
Summary
 
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:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-friday-9th-september-2016/
 
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


Commodities

 
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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