Market Matters Report / Market Matters Weekend Report 17th July 2016

By Market Matters 17 July 16

Market Matters Weekend Report 17th July 2016

Market Matters Weekend Report 17th July 2016

 

Overview
 
Global stock markets rallied strongly last week, as we anticipated in last weekend’s report. In our opinion we are entering an extremely exciting time for equities but definitely not one to sit back on ones laurels. With US stocks making the all-time high we have been anticipating over recent months it's time for us to paint a very clear roadmap of what we think comes next and more importantly how we believe profits can be generated. Although we believe the current rally is "Phase 5" of the bull market since the advance began in 2009, it appears way too early to contemplate aggressively selling stocks. Generally phase 5 is the one where low quality / battered up stocks play some catch as investors seek for anything that's perceived to be cheap as the overall market rallies and basically the "Fear of missing out" (FOMO) kicksin. Remember as we have repeatedly pointed out the market is sitting on record levels of cash, they are missing this rally and it hurts!
 
The months ahead are likely to be some of the most important periods to keep "fingers on the pulse" when it comes down to the matters of money / investments, in the both share market and elsewhere. Currently while the S&P500 remains above the 2130 breakout area we believe US stocks will advance another 5-10% minimum over coming months. Ideally we will then see ~3 months consolidation, followed by one final blow off top to become an aggressive seller. Unfortunately markets rarely unfold so easily hence we will be updating this view on a regular basis - remember tops are regularly harder to identify than lows.
 
While we are generally entering "sell into strength mode" as touched on above, some underperforming stocks of recent years are likely to yield some excellent returns over the next 3-6 months e.g. over the last month BHP is up 13.9% compared to being down 24.8% over the last year whereas CSL is up a relatively modest 3.6% compared to being up 20.7% over the last year - the underperformers playing catch up is not finished.
 
We simply feel "Phase 5" will be different in characteristics to the previous 6/7 years - before we believe stocks correct over 20%.
 
 
US S&P500 Monthly Chart
 
 
We believe the S&P500, using simple statistical average ranges, will rally another ~2% in July and the ASX200 ~1.5%. Last week was explosive, we think this week is likely to be strong but probably more subdued. The money on the sidelines is hoping to buy pullbacks hence they are likely to be shallow in nature as the market continues to grind higher - frustrating the underweight investors. Technically the ASX200 remains bullish while it is over 5275. Our "Gut Feeling" at present is equities rally 2-3% p.m. for the next few months with slightly less momentum but still climbing the wall of worry. From a valuation basis it's very easy for investors to step back - the only compelling value on a traditional matrix is generated by yield.
 
However, it does feel like global central banks are becoming tempted to again "throw $$" at the lack of growth / inflation problem, which sounds like a great recipe for a final blow style off top.
 
ASX200 Weekly Chart 
 
 
The Emerging Markets Index is looking particularly bullish with over 10% further gains anticipated, which is positive for the highly correlated ASX200. As we slowly cash in our chips in the main stocks some more aggressive / short term positioning in the resources / gold space is our likely path for the next two quarters. Conversely we will be giving the cold shoulder to the Healthcare and  REIT's sectors.
 
 
Emerging Markets Index Weekly Chart
 
 
A good example is miner South32 which looks good risk / reward buying around $1.80 with stops under $1.70.
 
 
South32 Weekly Chart
 
 
When it comes to bonds / interest rates we are rapidly becoming nervous. We see very little value buying bonds at current levels, with interest rates extremely low, or negative in some areas globally. Clearly, the risk is when interest rates start to rise over the years ahead which will impact bond prices and the prices of ‘bond like’ such as  Sydney Airports.  Interest rates may not surge from here in weeks / months to come BUT we are confident they will be higher in 5-years time.
 
With regards to gold & silver, we are bullish but so is the market which feels long at current levels, hence a few ugly days for those stocks (we saw selling at the end of last week) in weeks / months to come may be required before we start buying.
 
Standout technical chart of the week
 
The Hang Seng looks very bullish, likely to rally at least ~7% from Fridays close - this again bodes well for Emerging Markets and of course the ASX200.
 
Hang Seng Weekly Chart
 
 
 
Summary
 
  • We remain bullish, especially US / Emerging Markets. Taking into account our positive view on the US and some Asian Indices 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 dominate the performance over the next 6 months.
  • Now US equities have punched through to fresh all time highs,  our strategy has become clearly defined - we will be wearing our "Sellers Hat" lightening equities exposure into decent strength, however we believe there is no real hurry just yet.

 
 
What Matters this week
 
The ASX200's was set to open down ~10 points on Monday but we feel last week's strength will prevail.

Potential Investing opportunities for the coming week(s)

We are happily ~90% committed to stocks and are expecting to be patient in reducing this position. We are also looking out for good risk / reward opportunities in the resources space, even after recent strong gains.

* Watch out for trading alerts.

Potential Trading opportunities for the coming week

Remain long the ASX200 with stops under 5275, buy any "abc" style pullbacks - simple.
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-friday-15th-july-2016/
 
We are sitting on 11% cash after our last purchase of Vocus (VOC) at $8.33
 
 
Australian ASX200
 
We remain bullish the ASX 200 with stops under 5275
                                                                                                                  
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 having made fresh all-time highs even after BREXT. We are still bullish for the next few months / quarters, seeing around 10-15% more upside.
 
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 Weekly Chart
 
 
Chart 10c – 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
 
 
European Indices
 
European Indices have lost their BREXIT panic and are 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 is starting to look constructive.
 
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 and are bullish led by the Hang Seng which is targeting further 7% gains.
 
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 starting to make some decent gains but the Banks must continue to rally - CBA's report in August is likely to be very important  for the rest of 2016.
 
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) Daily 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) 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 continued to struggle as markets factor in one / maybe two 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 with the $A ignoring recent S&P downgrade warnings the short term strength looks likely to continue.
 
 
 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 BREXIT concerns subside. Ideal buying is any "abc" style retracement.
 
Copper remains in a negative downtrend on a longer term basis.
 
Crude Oil looks set to continue with recent strength towards the $US60/barrel resistance area after current consolidation.
 
Iron Ore exploded recently achieving our +$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

 
 
 

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 17/07/2016. 7:00AM.
 
Reports and other documents published on this website and email (‘Reports’) are authored by Market Matters and the reports represent the views of Market Matters. The Market Matters Report is based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.
 
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