Market Matters Report / Market Matters Weekend Report 1st May 2016

By Market Matters 01 May 16

Market Matters Weekend Report 1st May 2016

Market Matters Weekend Report 1st May 2016

 

Overview
 
Last week the ASX200 gained +0.3% while the Dow fell -1.3%, which was a continuation of the outperformance by the local market during April. The  ASX200 +3.3% & the S&P500 +0.25%. Locally we enjoyed a huge short covering rally in the resources and energy sectors plus decent gains from the heavyweight banking sector. It's not surprising that the AX200 is finally showing signs of life after a decade of underperformance, plus we are seeing downgrades to earnings in the US and slight upgrades here, we all know which market has ran the strongest over the last decade - since the GFC low the ASX200 is +68% and the S&P500 +210%. Remember two of our major forecasts for 2016 - the $US to fall and the ASX200 to outperform US equities, the $US is -5.6% to date but so far US equities are still slightly ahead of our local stocks.
 
Next week is huge for the local market with the RBA's decision on interest rates on Tuesday plus 3 of our "big four" banks reporting, volatility is likely to be high. Our feeling is that the risk for the banks is on the upside and we believe banks are likely to outperform the currently hot resources in May. The local market looks set to break Aprils' highs next week and again test the 5300 area, there are certainly plenty of potential catalysts to push the market up the relatively small ~70 points - see chart 1.
 
Share Price Index (SPI) 60 mins Chart
 

However the bigger picture certainly warrants more caution as we enter the seasonally dangerous April / May period. Only once since the GFC has the ASX200 enjoyed gains in May / June and that was as we rallied off the panic 2009 lows, on 5 occasions we have experienced decent falls, however after a many months of sideways consolidation we are not too bearish this year but do feel decent gains are unlikely, in fact more trading between 5150 and 5350 is our best guess with banks potentially leading gains and resources having a rest.
 
ASX200 Monthly Chart
 

We are watching gold and the $US very carefully for the key to the markets over coming weeks / months. The inverse correlation between gold and the $US is very strong and hence its correlation to our other resource stocks is high. Gold has made the fresh highs for 2016, in the $US1300 region, that we have been forecasting - see chart 3. This current rally has momentum and may easily push over $US1300 but we believe it will soon run out of puff and correct the whole advance from Decembers $US1046 level. This is likely to lead to a correction in Iron Ore and oil,  the very close inverse correlation between the $US and iron ore is illustrated by chart 4. Hence if we are correct and the $US bounces from its current support area gold, iron ore and oil stocks should correct shortly. However, gold bugs do not despair, we remain bullish the precious metal for 2016/7 and would be very keen buyers ~$US1200.
 
Gold Weekly Chart
 

$US dollar v Iron Ore Weekly Chart
 

The S&P500 is following our forecasted path nicely, while we are still looking for a 4-5% correction in May a push up over Aprils 2111 high would not surprise prior to a deeper correction.
 
S&P500 Daily Chart
 

Standout technical chart (s) of the week
 

As explained above gold has basically hit our $US1300 target. Similarly Regis Resources (RRL) that we bought at $2.37 should hit our +$3 target early next week. Be prepared we are likely to take this 25-30% profit next week.
 
Summary

We are looking for a reasonable 4-5% correction from US equities in May but fresh 2016 highs look a strong possibility first. Locally we believe that resource stocks will underperform in May as we anticipate a bounce in the $US after its 5.6% decline in 2016. Technically the banks look poised for further gains but with 3 of our big four banks reporting next week this view be in the dustbin very quickly!
 
What Matters this week
 
The ASX200's should open on Monday down ~10 points but recent strong momentum is likely to remain.

We are now sellers of resources and are likely to take excellent profits in Regis Resources (RRL) early next week.

We are not keen on buying early next week and would rather await price action after bank reports and RBA interest rate decision on Tuesday.

* Watch out for trading alerts.

Potential Trading opportunities for the coming week

From a trading perspective markets are likely to be volatile next week and trading size should be set accordingly. We are buyers of the ASX200 early in the week around 5240 and sellers over 5300..
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-portfolio-friday-22nd-april-2016
 
Cash position remains at ~34% after our switch from Telstra to Westpac.

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 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 are less bullish than their American counterparts but do now appear to be following the Dow up - perhaps the potential exit of the UK from Europe is causing understandable concern but strangely the FTSE has been the strongest index.

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 have regained some stability and the recent strength of other world indices. However, the Emerging Markets Index has reached our target area and still looks poised to pullback.

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 continue to enjoy the strong counter-trend rally that we anticipated. Banks rallied strongly last week as investors went searching for "cheap" stocks, this has improved our short term outlook for local equities especially on a relative basis.

Chart 23 – BHP Billiton (US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Weekly Chart

Chart 25a – Woodside Petroleum (WPL) Monthly Chart

Chart 25b – Santos (STO) 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) Weekly 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 bounce is likely over after very weak inflation numbers increased significantly the chance of rate cuts in 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 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.

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 1/05/2016.  4:30PM.
 
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