Market Matters Report / Market Matters Weekend Report 16th October 2016

By Market Matters 16 October 16

Market Matters Weekend Report 16th October 2016

Market Matters Weekend Report 16th October 2016

Overview
 
Last week, the ASX 200 lost -0.61% which was the first decline in the last 4 weeks.  Another extremely tight range for the market and we’ve now seen the index move within a very small 77 point band for the first 16 days of October. Markets can go through periods of indecision with very small ranges, however, the longer it stays in that state, the more aggressive a move will be when some catalyst comes along that rocks the boat.
 
One trend the market is fixated on at the moment is US interest rates. When the Federal Reserve will hike and more importantly to us, will stocks fall on the back of it? It’s a fairly plausible link to make given that stocks have rallied hard on low-interest rates and supportive monetary policy – with the first round of Quantitative Easing in the US announced on November 25th 2008. Since then, the S&P 500 has rallied from around 740 to 2132 as of Friday – a move of +188% over almost 8 years. It’s a huge move and it’s been supported by central banks which at some stage will need to step out of the market.
 
That said, central bank support will be around for a long time yet and it seems there is a very clear reluctance by the Fed to tighten policy in any meaningful way. Let’s face it, they missed their chance to hike in September, they won’t do it in November given the circus of the US election so December seems almost a certainty at this stage – they need to do it to maintain any semblance of credibility. The problem is the market doesn’t think it’s a sure thing with Futures only pricing a 65% chance of a hike. We’ve seen a number of Fed members come out over the past week guiding towards a December hike and this has been supportive of the $US.
 
If the market has a 65% chance of a hike pencilled in, and we get a continual flow of Fed members talking up the December hike, then that probability will increase between now and December which means the $US has further upside left. It started to move last week with the US Dollar Index putting on +1.63%. The reason we care, and we wrote about this earlier on in the week, is we’re keen to get more exposure to commodities however if we have a period of $US strength – up to the 105 level as we’ve been calling for some time now, then materials / Gold stocks might spend some time in the sin bin – and we think we’ll be able to buy them at lower levels.
 
US Dollar Index Weekly Chart


 
BHP for instance came back fairly hard over the past week losing more than 3% to close Friday at $22.54 – on the back of strength in the $US. The obvious support area sits around $21/21.50 and if it can hold that level, then technically it still looks positive however it will be influenced heavily by US interest rates.  
 
BHP Daily Chart 



 
 
Despite the small ranges and tepid trade for the first few weeks in October, selling has been fairly anaemic and the range of 5400/5375 should provide a good level of support. We closed Friday at 5434. If 5400/5375 holds we maintain our bullish stance into Christmas with a potential target of ~5700-5800 i.e. initial resistance at 5725, or a 4th swing high 200-points above the previous.
 
ASX200 Weekly Chart
 

 
 
Standout technical chart (s) of the week
 
There has been a raft of merger and acquisition (M&A) activity in the mining services sector in the past few months. Bradken (BKN) was bid for by Japans Hitachi early this month whileCimic (which is the old Leightons) made a play on UGL last Monday which saw the stock move from $2.14 to close the week at $3.20.  Both bids were at high premiums relative to the current share price however they remain at a fraction of where both companies traded during the heights of the mining boom. There have been a raft of other deals / proposed deals and rumblings within the sector over the past 6 months or so.
 
Another in the sector that looks like a good risk/reward play is Monadelphous (MND). This was the old market darling in the mining services space that all those backward looking fundamental programs / services followed down from over $20 to a low around $6 in December of 2015. The stock did pop from $6 to $12, pulled back to just under $8 and is now trading just under $10. Earnings seem to have bottomed and although we’re yet to see any meaningful  uptick here, the stock is cheap, has a good balance sheet and we can structure a reasonable trade from a risk / reward perspective.
 
We believe MND can be bought under $9.50 with stops under $8.80 targeting $11.50 in the short term
 
Monadelphous (MND) Monthly Chart
 

 
 
Summary
 
No change really while equities continue to "climb the wall of worry" with US stocks a few % below their all-time high. Our view is this will continue for the next 3-6 months and investors should become more active than usual taking decent profits when they present themselves and considering stocks when they get hit hard.
 
US equities have reached  fresh all-time highs, our strategy remains clearly defined - we are wearing our "Sellers Hat" looking to slowly lighten equities exposure into strength.
 
What Matters this week
 
The ASX200's is set to open slightly lower on Monday, with the futures off -9pts

Potential Investing opportunities for the coming week(s)

We are looking to sell Bendigo Bank (BEN) on Monday above $11.05.   

Potential Trading opportunities for the coming week

From an indexlevel we can go long if the ASX 200 pulls back into the 5400 / 5375 range with stops under 5350. We believe MND can be bought under $9.50 with stops under $8.80 targeting $11.50 in the short term
 
* Watch out for trading alerts*
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio: https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-14th-october-2016
 
We are overweight the banking sector which has been beneficial this morning,however we are in the market to sell Bendigo bank (BEN) above $11.05 on Monday
 
Australian ASX200
 
Last week saw the first weekly decline in the last 4. 5400/5375 region may come into play early this week and it’s important for the index to hold that level. A tight range on low volume makes the index more susceptible to a larger more aggressive move at some point.
                                                                                                                  
Chart 1 – ASX200 Monthly Chart


Chart 2 – ASX200 Weekly Chart


Chart 3 – ASX200 Daily Chart


Chart 4 - SPI (Share Price Index) Futures 60-min Chart


Chart 5a ASX200 Banking Index Monthly Chart


Chart 5b ASX200 Financials Index (excl. REIT's) Weekly Chart



Chart 6  Volatility (VIX) Index Weekly Chart


Interest Rates
 
Short-term interest rates in the US look ready to move significantly higher.
 
Chart 7a – Australian 3-year bonds Weekly Chart


Chart 7b – The US 10-year Interest Rate Monthly Chart



Chart 7c – The US 2-year Interest Rate Monthly Chart

  

 
American Equities
 
American indices remain bullish medium term however they did lose some momentum last week. The Russell made new highs and failed while the Nasdaq which typically leads US stocks remains positive
 
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 Daily 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, the UK FTSE continues to stand out as the bullish index as it benefits from a weaker pound post BREXIT but it has now reached major resistance as shown below.
 

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 Hang Seng and China indices look ready for a few more weeks sideways choppy style price action. The Emerging Markets still look set to pop 4-5% higher and the Japanese Nikkei feels ready to "pop" to the upside.
 
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 fell last week for the first time in the last 4. Volume was low and the range small. 5400/5375 needs to hold on the downside.

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) Weekly 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) Weekly Chart


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


Chart 38a – AMP Ltd (AMP) Monthly Chart 


Chart 38b – Henderson Group (HGG) Weekly Chart 


Chart 39a – Sydney Airports (SYD) Monthly Chart


Chart 39b – Mantra Group (MTR) Daily 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 (REA) 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 56b– Blackmore's (BKL) Monthly 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 is verytrickly at present, we continue to eventually target the ~65c region but this will be dictated more heavily by what the US currency does.
 
The $US rallied last week and we expect this trend will continue as expectations for December interest rate hike firm up.
 
Chart 59b– The $US Index Monthly Chart
 

 
 
Commodities
 
A week of consolidation in the GOLD space after large cracks appeared the prior week. If the $US strengthens then ~ $US1200/oz support would be our preferred scenario
 
Copper remains in a negative downtrend on a longer-term basis targeting prices over 20% lower. Copper stocks have been the big underperformers in the recent ‘mining rally’
 
Our target for Crude Oil remains +$US60/barrel
 
Iron Ore has achieved our +$US70/tonne target, technically we remain now neutral / bearish until further development.
 
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 16/10/2016. 9:00AM.
 
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