Market Matters Report / Market Matters Weekend Report 19th June 2016

By Market Matters 19 June 16

Market Matters Weekend Report 19th June 2016

Market Matters Weekend Report 19th June 2016

 

Overview
 
After the excellent 7 week, 534 point / 10.9% rally, the ASX200 continued with its consolidation / pullback last week falling another 3.7%. Both BREXIT fears and "End of Financial Year Selling (EOFY)" are likely to be weighing on the market. The losses locally were led by the banking -5.4% and insurance sectors -5% with no large market players / sectors supporting the Index. Unfortunately the Australian market was a very poor relative performer on the world stage with the Dow only correcting 1.1% and the vulnerable UK FTSE down a relatively minor 1.5%. This strongly suggests that the EOFY factor is perhaps bigger than many think. Basically the ASX200 managing to fall by around twice Europe clearly illustrates what we have discussed frequently in recent times "be prepared for some unusual volatility from individual stocks over the next 2 weeks". The short term direction of the local market is tricky at present due to the BREXIT / EOFY and then an election but we maintain a net positive bias and will continue to look for any bargains created by tax loss selling. Remember with the ASX200 down almost 8% for the year there are lots of candidates for EOFY selling.
 
On Friday we increased our market exposure by 15% picking up CSL, HGG and MQG - 3 quality stocks that we like which have been sold off, to different degrees. We pulled the trigger on our buying of BREXIT battered stocks on Friday simply because the ASX200 had corrected 5.3% from its end of May high and Junes' monthly range had slightly exceeded that of May - plus of course we believe the vote will be to "remain in the EU". However, we have maintained cash levels of over 20% while we keep our eyes glued for opportunities created by EOFY volatility. We are very unlikely to deploy this cash until we see the result of the UK's vote next Thursday.
 
Please note we are somewhat concerned by the poor performance of the local market which will increase significantly if we cannot "keep up" with other indices in July. Interestingly when we look at the monthly ASX200 chart suddenly another decent May top looks a strong possibility and we stress we cannot be outright bullish the local market unless it can close over 5275 i.e. ~2.2% higher. However this is one large days move and a positive BREXIT vote could easily unleash the bulls.
 
ASX200 Monthly Chart 
 
 
We are very aware that from a technical perspective that the ASX200 looks shaky but while we remain bullish US stocks targeting another 8-15% advance it feels premature to panic locally. We have discussed recently the huge cash levels that fund managers from around the world are hording as nobody can see reasons to buy stocks at these levels. However even with the Chinese government joining the party selling US stocks to raise foreign reserves and a "leave" BREXIT vote potentially calamitous for equity markets the US S&P500 is only 3.1% below its all time high.......to us this still feels like a very strong market, ignoring bad news, where the most pain will be inflicted by a strong rally.
 
 
The US S&P500 Monthly Chart 
 
 
We continue to believe that incredibly low interest rates remain the main supporter for stocks until further notice but not in the way many necessarily think. The chase for yield has simply hammered many investors in Australia over recent years as the "safe" banks have fallen ~30% since their 2014 highs. However the free money that is available around the world is leading to massive company buy backs of stock as the directors attempt to increase earnings per share. If we simply look at US stocks over the last 2 decades they have performed best during periods of rising interest rates, until now.
 
However we are not in normal times, due to massive Central Bank intervention, with negative interest rates in Germany and Japan (yes you pay to save there) - Its now approaching $10 trillion dollars of bonds that are paying a negative yield. Smart companies should simply borrow money for the next 10-20 years, for almost zero cost, and await opportunities because THEY WILL present themselves. We believe this "bond bubble" is what could easily burst and cause havoc in financial markets but for now all is calm. We can imagine a trickle of this pile of money in bonds coming into equities, searching for better returns, creating the rally we are targeting to fresh all time highs for the S&P500 BUT any more selling of bonds could get horrible very quickly and interest rates will rise fast - nobody is talking this story just yet.
 
 
US S&P500 v 2 year Generic 2-year yield Quarterly Chart 
 
 
For those that were not aware we joined the low interest rate party last week with Australian 10-year bonds trading below 2% for the first time in history. However after BREXIT, EOFY and interest rates its hard to focus on a great deal until next weekend as it all may become irrelevant at the "cross in the leave box" on Thursday.
 
 
Australian 10-year Bond yield Monthly Chart 
 
Standout technical chart of the week
 
Fundamentally CSR has been improving over recent times including a 13% increase in profits in May and announcing a $150m stock buyback last March. CSR is looking great technically targeting +$5.50 with stops under $3.15 = good risk-reward.
 
CSR Ltd (CSR) Monthly Chart 
 

Summary
 
We remain bullish, especially US equities, BUT stress if the BREXIT vote goes in the "Leave" direction equities are likely to be in for a very tough ride for many months at least.
 
What Matters this week
 
The ASX200's should open relatively unchanged on Monday following a quiet night on Wall Street as traders / investors await signs from Britain.

Potential Investing opportunities for the coming week(s)

Remain patient, we are watching any potential "tax loss" selling over the next 2 weeks that may create some excellent buying opportunities.

Watch out for trading alerts.

Potential Trading opportunities for the coming week

No surprises from a trading perspective markets are likely to remain choppy - we recommend sitting on ones hands for a few days.
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-17th-june-2016/
 
Our cash position has reduced to a solid ~21% after allocating 5% to CSL, Macquarie and Henderson Group on Friday prior to the BREXIT vote. Tax loss selling will become our focus after Thursdays vote.
 
 
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 17,300 is required for the Dow 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
 
European Indices
 
European Indices remain very tricky which is no surprise with the BREXIT vote looming this Thursday - June 23rd.
 
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
 
The Asian indices are tricky at the moment but appear neutral with a slight positive bias.
 
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 but it's the Banks renewed weakness into the end of financial year that's damaging the ASX200 the most.
 
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) 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. We are targeting the ~65c region from here.
 
 
Chart 59b– The $US Index Monthly Chart
 
 
Commodities
 
Gold has  rallied very well from multi-year lows last December but has now hit our initial target area hence short term caution is warranted - the initial pullback towards the $US1,200 region materialised, will it repeat is the question.
 
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 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



Regards,
The Market Matters Team
Level 12 28-34 O'Connell St
Sydney, NSW 2000.
 

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