Market Matters Report / Market Matters Weekend Report 13th August 2016

By Market Matters 13 August 16

Market Matters Weekend Report 13th August 2016

Market Matters Weekend Report 13th August 2016


 
Last week felt pretty average for people like ourselves, who are medium term bullish equities,  however the Australian market was actually not too bad until we compare ourselves to other global markets, for the week - ASX200 +0.6%, Dow +0.2%, UK FTSE +1.8%, German DAX +3.3%, Japan +4.1% and NZ +0.75%. Unfortunately we ignored the strength in Asia and Europe and idled along with the US and New Zealand - both of whom have had dramatically outperformed the Australian market over recent times. When we went through our charts of both local / global indices plus individual stocks there were noticeably fewer things than usual that  caught our eye for both the previous weeks activity and news.
 
Six initial  observations we made were:
 
1. ANZ Bank rallied 5.2% while Westpac fell 1.9%. - we still expect ANZ / NAB to outperform Westpac and CBA short term - NAB gives us a quarterly update on Monday.
2. Crude looks to have completed its correction, we remain oil bullish targeting over $US60/barrel which should help the local energy sector add to last week's 2% gains.
3. The Emerging markets Index remains positive but from BHP's close in the US, last week's strength will be tested early next week.
4. We are witnessing huge intra-day / week volatility when stocks report e.g. Cochlear, Carsales.com and REA Group. We have over 40% of the market reporting this coming week, including BHP, CSL and WPL.
5. Gold stocks still look poised for a decent correction but it has not yet unfolded.
6. We remain bearish the Real Estate sector which retreated 1.3% last week.
 
The ASX200 last week simply traded sideways for 5 days with an extremely small 70-point (1.3%) range. Technically the ASX200 needs to close over 5560 to become positive short-term and target another test  over 5600 - CBA trading ex-dividend this coming Wednesday will take a few points off the index.
 
The XJO options expiry (which happens on Thursday) often has an intriguing habit of causing a strong few days for the market. In July the ASX200 rallied 91-points over the 24 hours of expiry (Thursday 21st July), hence we will be watching carefully to see if stocks can get a "bid tone" into expiry this Thursday. However, we also remain cautious short-term due to the historically weak seasonal performance from equities during Augusts'.
 
ASX200 Daily Chart
 

 
One shining light last week was the retail sector which has soared over 20% in 2016. Heavyweights Harvey Norman and JB HI-FI led the gains rallying 9.6% and 6.1% respectively. However its Myer that may create some fireworks if retail maintains its popularity due to a massive 16.1% of the stock being short sold, while the shares are trading at their highest level since June 2015 - the path of most pain is up! Overall we can see a potential test of $1.50 by Myer but the risk / reward is not compelling and we still see better value in the other quality names.
 
ASX Retailing Index Monthly
 

 
As we touched on in a morning report this week the "Fear Index" which is more officially called the VIX is trading very close to multi-year lows which is garnering a significant amount of market commentary. Our view is that too many people are talking about it plus its only just started moving under 12, we would usually expect at least a few more months of complacency before alarm bells start ringing in our O'Connell Street offices.
 
The VIX (Volatility) Index Weekly Chart
 
 


Our view on the VIX ties in nicely with our medium term bullish outlook for US equities, we remain bullish US stocks targeting a further 5-6% upside e.g. the 11.500 area for the NYSE Composite Index. As we have commented before predicting the ASX200's path from US stocks is fraught with danger but our best guess is a test of the 5700 area i.e. 3/4% higher.


 


The Australian market continues to be primarily being driven by the banks - the "big four banks" account for almost 25% of the index! Last week ANZ and then to a lesser CBA gave us confidence that both the sector and market were poised to run higher but then along came Westpac with a very average set of numbers. Westpac fell at one stage $1.88 from its Wednesday high, a drop of 6%. Obviously the NAB figures on Monday will influence the sector but technically we need a close back over $30.20 to regain confidence with Westpac - WBC is the second largest stock on the AX200 with a weighting of ~6.5%.
 
We are monitoring the banks carefully because of course we may be wrong with our short term positive outlook in which case our exposure to the sector is too high.
 
Westpac Bank (WBC) Daily Chart
 

 
Another result that had a negative influence on the ASX200 was from Telstra (TLS), the markets 5th largest stock, which we have been negative for a while - preferring Vocus (VOC) in the sector. TLS was down 3.7% last week and has fallen over 10% during the last 12 months, at some stage its 5.7% fully franked dividend will become supportive for the share price - the stock pays a 15.5c dividend on the 24th of this month.
 
Standout technical chart of the week
 
As we have mentioned previously it's our belief that crude oil is likely to have completed its correction from the $51 region and is now heading towards the $US60/barrel area. Over the last 6 months we have often avoided Woodside (WPL) when trading the energy sector. However the market has changed its characteristics in 2016, and we are now targeting a move higher in WPL to test the $30 region ~9% higher. Simply investors / traders have ignored WPL during 2016 focusing on the more volatile members of the sector. We believe it's soon to be WPL's time, just has occurred recently across many other sectors in the market - buying the underperformers has been the trend for 2016.
 
NB WPL reports next week on 19th which is likely to lead to some short-term volatility so not for the faint hearted!
 
Woodside Petroleum (WPL) Monthly Chart
 
 
 
Summary

  •  No change, we remain bullish equities, short term the ASX200 should now hold the 5500 area and medium term the 5400 area.
  • Taking into account our positive view on the US stocks we do NOT believe it's time to sell stocks aggressively, just remain prudent on exposure.
  • Stocks that have had a relatively tough 6/7 years are likely to perform well over the next 3-6 months e.g. WPL.


 
Now US equities are trading at fresh all time highs, our strategy has become clearly defined - we will be wearing our "Sellers Hat" slowly lightening equities exposure into strength but no hurry just yet.
 
 
What Matters this week
 
The ASX200's was set to open down ~10 points on Monday, it will be an interesting few days as company reports filter through.

Potential Investing opportunities for the coming week(s)

We are happily ~91% committed to stocks and expect to be relatively patient in reducing this position. We are also looking out for good risk / reward short term opportunities in the resources sector, even after recent strong gains, with WPL /RIO / BHP currently looking the best value.

We are looking at trading style positions next week

Potential Trading opportunities for the coming week
 
Buy WPL either stock, or via options..
 
Watch out for trading alerts.

Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-thursday-4th-august-2016/
 
We are sitting on 9% cash after we took profit last week in S32 -  plus overall we are still wearing our "sellers hat".
 
Australian ASX200
 
The break over 5400 for the ASX200 has now transformed the resistance level of 5400 into clear support with the 5700 area as next resistance. A break to new highs for the month, over 5611, would strongly indicate a test of the 5700 area.
                                                                                                                  
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
 
The American indices remain bullish with most of them again making fresh all-time highs last week, we are still bullish for the next few months / quarters, seeing ~8% more upside for the S&P500 but note short term the market looks tricky.
 
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 10c – 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
 
European Indices lost their BREXIT panic fairly quickly and are still looking "ok" at current levels. The UK FTSE is very strong making fresh highs since August 2015, assisted by a weak Pound, but needs to hold the 6400 area. The German DAX has almost
turned bullish.
 
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 have shaken off the BREXIT surprise, like Europe, and are bullish led by the Hang Seng which remain bullish.
 
The Emerging Markets Index is also looking excellent targeting a further +10% advance minimum.
 
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 is consolidating recent gains however the Banks must regain some strength or the ASX200 will continue to underperform relative to other global markets.
 
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) Monthly 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 – 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
 
The $A has struggled as markets factor in further potential rate cuts for Australia. A large degree of the recent bounce from the 68c area has been courtesy of a weaker $US. We are eventually targeting the ~65c region BUT the carry trade has once again become obvious as discussed during reports this week. The $A looks likely to continue and frustrate the RBA - we are targeting 81c from this bounce.
 

 
Chart 59b– The $US Index Monthly Chart
 
 
 
Commodities
 
Gold has  rallied very well from multi-year lows last December but has now reached our initial target area hence short term caution is warranted, especially if the $US strength resumes. Ideal buying is any "abc" style retracement towards $US1200/oz.
 
Copper remains in a negative downtrend on a longer term basis.
 
Crude Oil has looks set to continue with recent strength towards the $US60/barrel resistance area after what currently looks like a completed pullback.
 
Iron Ore exploded achieved our +$US70/tonne target, technically we are now neutral but a bounce over $US80/tonne would not surprise.
 
Chart 60 – Gold Monthly Chart
 


Chart 61 – Copper Monthly Chart


Chart 62 – Crude Oil Monthly Chart

Chart 63 – Iron Ore Monthly Chart


 


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