Market Matters Report / Market Matters Weekend Report 15th May 2016

By Market Matters 15 May 16

Market Matters Weekend Report 15th May 2016

Market Matters Weekend Report 15th May 2016

 

Market Matters Weekend Report
 
Overview
 
Last week the ASX200 gained 0.7% while the S&P500 fell 0.5%, the continued local outperformance feels aided by the recent  surprise RBA interest rate cut to 1.75%, plus the market is now pricing in another cut to 1.5% for 2016. Impressively that's the fifth straight weekly gain enjoyed by the local bourse adding a solid 7.9%, while US stocks have actually fallen - a pullback / consolidation would be no surprise short term. Overall this was an especially solid effort for the local market with ANZ and Westpac both trading ex-dividend and our iron ore stocks again coming under significant pressure e.g. RIO -6.5% and Fortescue Metals -7.4%. As we enter May and with the index moving less than 1% overall we thought this was an ideal time to revisit our annual forecasts, evaluate how they are travelling and more importantly bring them up to date with any adjustments / tweaks.
 
Our lead comment was we felt 2016 would be a year of major trend changes i.e. US equities, Emerging Markets and $US. Our number one view within local equities was to switch $US earners into low cost gold stocks - very radical at the time. Before we look at our favourite three stocks for 2016 let's check out how these large macro themes have travelled over the last 5+ months.
 
S&P500 Daily & Monthly Charts

 

 
 
In January we were expecting US equities to reach fresh all time highs prior to a major correction. The S&P500 has rallied strongly as expected since February, trading within 1.1% of all time highs. However, due to the nature of this rally we are now putting only a 15% chance weighting that US stocks have topped for 2016 and will correct significantly from current levels. Our preferred scenario is US stocks pullback towards 2000-2010 in the next 1-2 weeks prior to rallying to fresh all time highs - see chart 1. If this view is correct the major top / correction that we have been targeting for US equities is likely to occur in 2017 NOT 2016 and the S&P500 should rally another 8-10% from current levels.
 
The Emerging Markets ETF Weekly Chart
 
 
Emerging Markets rallied superbly from January ~28% (see chart 2), with local resource stocks like BHP, RIO and FMG joining the party. However our targets for the Emerging Markets were reached in February moving us from bullish to a very happy neutral.
 
The $US Index Monthly Chart
 
 
We were expecting a top for the $US in 2016 which would hurt most investors / traders who were bullish the $US looking for interest rate rises in the US. We certainly have experienced a major reversal to date with the $US correcting 8.5% into this month's low. As expected this $US weakness led to strength in commodities like gold, crude oil and iron ore. However the $US has reached our initial target area and rallied strongly, we now feel that the $US correction is complete for 2016 and its likely to continue with its major bull move - this would be poor news for resource stocks short term - see chart 3.
 
Switching from $US earners into low cost gold producers has been an excellent call primarily due to gold stocks rallying, in 2016 RRL is +37% and NST is +72%. Taking into account our fresh view of the $US we would now reverse this trade / switch.
 
Finally our favourite 3 stocks for 2016 have performed solidly from identified buying levels - Regis Resources (RRL) +37%, Challenger (CGF) +11.2% and Telstra (TLS) +13.6% and this is not including some healthy dividends. Considering our view of the $US at present we would definitely take part profit for investors still holding RRL. We have enjoyed some nice returns from all 3 of these stocks but have taken profit over recent weeks.
 
Basically all of our forecasted moves have unfolded nicely in the first 6 months of 2016 with the exception of the S&P500 reaching fresh all time highs - its fallen 1.1% short to date. Moving forward Market Matters may start having biannual, or quarterly,  forecasts as major market moves are unfolding very fast. Importantly we no longer think that US stocks will top out in 2016, more likely 2017. However this view has a close stop on where we will change our opinion, the S&P500 should not accelerate under the 2000 area, only 2.3% below Fridays close.
 
Standout technical chart(s) of the week
 
Westfield reached our target area of ~$11  mid last week. We are now very cautious after being positive both the stock and the sector. We would run stops on WFD under $10.30 and give thye sector a wide berth for at least a few weeks.
 
Summary

Moving forward for 2016 we are now positive the $US and hence neutral / negative commodity prices in general. We no longer believe that US stocks will top out in 2016, more likely 2017, likely to be ~8-10% higher. However this view has a close stop on where we will change our opinion, the S&P500 should not accelerate under the 2000 area, only 2.3% below Fridays close.

* Watch closely for Market Matters alerts via SMS and email.
 
What Matters this week
 
The ASX200's should open on Monday down ~10 points but Saturdays weak Chinese data may increase the selling early in the morning.

Potential Investing opportunities for the coming week(s)

Exciting opportunities are thin on the ground at present which is not surprising with the ASX200 close to the 5400 resistance area. Woolworths is a stock we are now watching for the first time in years but last week it rallied 5.5%, or basically 10x more than the market. At present we do not believe WOW is "cheap enough" considering its significant headwinds ahead BUT if we get one more downgrade and a panic under $20 in the share price we will definitely consider buying.....patience for now.



* Watch out for trading alerts.

Potential Trading opportunities for the coming week
 
From a trading perspective markets are likely to remain choppy next week and trading size should be set accordingly. We are keen buyers of the ASX200 around 5200 and cautious sellers over 5350.
 
  
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-portfolio-thursday-12th-may-2016
 
Cash position remains at ~41% after buying Origin Energy into weakness last week.
 
 
Australian ASX200

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 targeting fresh all time highs in 2016, a clear break under 17,450 required 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
 

Chart 14b – The Canadian Composite Index Daily Chart
 

European Indices

European Indices continue to struggle compared to their American counterparts - perhaps the potential exit of the UK from Europe is causing understandable concern.

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

Asian indices are likely to struggle early next week after poor economic data from China on Saturday - China is threatening fresh multi year lows. The Emerging Markets Index reached our target area and has commenced a pullback at a minimum.

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 strong counter-trend rally looks to be over. Banks remained firm last week as ANZ and Westpac went ex-dividend.

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) Daily 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 Hifi (JBH) Monthly Chart
 

Chart 58– Harvey Norman (HVN) Monthly Chart
 

Chart 59a– Australian Dollar (AUD) Monthly Chart

 The $A has continued to fall as the $US rallies and markets factor in two rate cuts for Australia.

 

Chart 59b– The $US Index Monthly Chart
 

Commodities

Gold has recently rallied very well from multi year lows but has now hit our initial target area hence caution is warranted.
 
Copper remains in a negative downtrend on a longer term basis which is a very similar chart pattern to Newcrest Mining (NCM) and, unfortunately, we have all seen what happened there.
 
Crude Oil has 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
 


Regards,
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 15/05/2016.  10:40AM.
 
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