Market Matters Report / Market Matters Weekend Report 21st August 2016

By Market Matters 20 August 16

Market Matters Weekend Report 21st August 2016

Market Matters Weekend Report 21st August 2016

Overview
 
Last week the ASX200 continued to trade in a very lack lustre manner, extending the tight 71-point trading range to 10 consecutive days, plus Monday is looking to be a strong possibility to extend this period of muted activity. Global 
markets in general followed a similar path of stagnation which as we said on Friday has resulted in us feeling that we have been writing a consistent but uncreative macro story over recent weeks. For the traders of the index it's been a tough few weeks and overall we believe patience is the best form of action, which means in this case do nothing - in the ASX200 we are buyers under 5420 and sellers around 5650.in the ASX200 we are buyers under 5420 and sellers around 5650.
 
However "under the hood" of the
index the story has been very different with volatile activity in many pockets due to an unpredictable reporting season - we will be looking at some of these moves later in today's report. With over 100 companies reporting next week the likelihood is the market volatility will continue to be stock specific in the short-term. Stocks reporting include Wesfarmers, Woolworths, Fortescue and Vocus. From the results we have received to-date company beats are outperforming misses by about 60% but more companies are suffering downgrades than upgrades.  
 
ASX200 Daily Chart
 

 
 
We continue to reiterate our short-term bullish view for US equities targeting further gains of ~6% prior to a major +20% correction. 
Subsequently we remain in "sell mode" and will be looking to significantly increase our cash positions into strength. Tops are usually tough to pinpoint as markets have a habit of rolling over slowly e.g. For the NYSE Composite Index a 4-month topping pattern in 2014 and 6-months in 2015, prior to corrections of 11% and 20.6% respectively.
 
Importantly while identifying tops 
maybe an almost impossible task, knowing when you don't want to be too exposed to equities is much easier; we believe that time is probably 3-6 months away.
 
US NYSE Composite Index Monthly
 

 
 
Reporting season led to some big moves, a few of which caught our eye.
 
1. ASX200 -0.1%.
 
2 Winners - Woodside +5.1%, Treasury Wine +12%, Ansell +16%, Sonic Healthcare +5.5% and Orora 10.9%,
 
3 Losers - AMP -5.6%, Magellan -7%, QBE -10.9%, Medibank Private -7.5%, IAG -4.6% and CSL -7.4%
 
Firstly below is the summary of our current interpretation of these 11 stocks while we’ve looked at 3 in more detail:
 
Bullish
 
Woodside target ~ $30 with stops at $28
Ansell - stay long with stops under $20.
Sonic Healthcare (SHL) bullish targeting ~$25 with stops under $21.50.

Orora (ORA) stay long with stops under $2.80, no clear target at present.
 
Bearish
 
Treasury Wine - take profit around $11 looking to 
renter under $9.
Magellan Financial (MFG) - A pullback towards $17-18 appears to be underway.
AMP Ltd - simply no need to be in this stock.
QBE Insurance - currently neutral but we will consider accumulating under $9.50.
Medibank Private - we see no fundamental, or technical, reason to look at this stock currently plus we believe overall insurance stocks are currently priced a touch rich.
Insurance Australia (IAG) - we see no fundamental, or technical, reason to look at this stock currently plus we believe overall insurance 
stocks are currently priced a touch rich.
CSL Ltd - CSL is a great company but now looks likely to track sideways for a number of months to come, which is not ideal for our holding.
 
Last week SHL announced a 30% lift in profits plus forecasting revenue to rally over $5bn for the first time, clearly a good result even after some tax benefits. The stock looks likely to test the $25 area before encountering resistance,
unfortunately, the risk / reward is not attractive at current levels.
 
Sonic Healthcare (SHL) Index Monthly Chart
 

 
 
QBE announced yet another weak result and the stock was hit hard. It's hard to imagine this was once a ‘must own’ stock trading ~ $35. Moving forward we will actually continue to monitor QBE closely as unlike most stocks it will benefit from rising interest rates, a break under the multi-year low of $9.50 will start to show some value in the stock.
 
QBE Insurance (QBE) Weekly Chart
 

 
 
CSL was hit hard last week despite a reasonably strong earnings result last week while they underwhelmed the market in terms of guidance on growth for FY17- somewhat of a concern when a company is trading 
on a PE of over 30x. The result was good and it was well flagged that CSL would spend more on new products in FY16  but when your share price has experienced such strong gains leading into the result, you’re priced on a ‘high growth’ multiple, and it’s the growth element of the result that disappoints then it’s understandable that a sell off eventuates! On the flipside, the company is again considering another $500 million share buyback. We are currently happy with our investment but concede we should been more patient with our averaging.
 
CSL Ltd Monthly Chart
 

 
 
As we touched on last week the Australian market is hugely influenced by the financials with the "big four banks" making up almost 25% of our index! Two charts that are catching our eye, largely because nobody appears to be considering them:
 
1.The US S&P500 Banking Index is poised to breakout to the upside, a 2% rally can be bought with stops under 209 (6.5% risk) but the upside target is over twice this.
 
2. Westpac closing over $30 has generated a technical buy signal, targeting over $31.50 with stops ~$29.20, solid 2-1 risk reward.
 
We are monitoring the banks carefully 
because of course we may be wrong with our short-term positive outlook in which case our exposure to the sector is too high.
 
US S&P500 Banking Index Monthly Chart
 

 
Westpac Bank (WBC) Daily Chart
 

 
 
Standout technical chart of the week
 
The gold market is starting to unfold as we have patiently been anticipating. We continue to target a further ~8% fall in the Market Vectors gold ETF fund.
 
If gold stocks follow this path we will be looking at buying some of the following : Regis Resources (RRL) ~$3.50, Newcrest Mining (INCM) ~$21 and Northern Star Resources ~$4.20.
 
Market Vectors Gold ETF Daily Chart
 

 
 
Summary
 

  • No change, we remain bullish equities,short-term
    the ASX200 should now medium term hold the 5400 area. Taking into account our positive view on the US stocks 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 perform well over the next 3-6 months e.g. WP and perhaps the banks.
  • Now US equities are trading at fresh all-time highs, our strategy has become clearly defined - we will be wearing our "Sellers Hat" slowly lightening equities exposure into strength but no hurry just yet.


What Matters this week
 
The ASX200's is set to open down ~5 points on Monday, it will be an interesting week after such a prolonged period of inactivity a move from the ASX200 is well overdue.

Potential Investing opportunities for the coming week(s)

We 
are happily ~96% committed to stocks but expect to be reducing this position in the relatively near future. We are also looking at good risk / reward opportunities in the gold sector which appear to be looming on the horizon.

Potential Trading opportunities for the coming week
 
Do nothing at present.
 
Watch out for trading alerts.

Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-friday-19th-august-2016/
 
We are sitting on 4% cash after adding to our CSL position and switching from Henderson (HGG) to Woodside (WPL) - overall we are still wearing our "sellers hat".
 
Australian ASX200
 
The break over 5400 for the ASX200 transformed the resistance level of 5400 into clear support with the 5700 area as next standout resistance. The market has traded in an extremely tight 70-point range for the last 10 days, a break over 5560 would point to a test of the 5650 area.
                                                                                                                  
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 with most of them again making fresh all-time highs last week, we are still bullish for the next few months / quarters, seeing ~6% more upside for the S&P500 but note short term the market remains tricky.
 
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 10c – 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
 
European Indices lost their BREXIT panic fairly quickly and are still 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 has almost
turned bullish but similarly needs to hold over 10,400.
 
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, like Europe, and are bullish led by the Hang Seng which has reached our initial target.
 
The Emerging Markets Index is also looking excellent targeting a further +5% 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 has consolidated recent strength but the Banks must regain some "mojo" 
otherwise, the ASX200 will, unfortunately, continue to underperform.

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) Monthly 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) Monthly 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) 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 struggled over recent years as markets factor in further potential rate cuts for Australia to fight the weakening economy. 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 relative strength looks likely to continue and frustrate the RBA - we are targeting ~81c from this bounce.
 

 
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 the $US strength resumes. Ideal buying is any "abc" style retracement towards $US1200/oz.
 
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 what currently looks like a completed pullback.
 
Iron Ore exploded achieved our +$US70/tonne target, technically we are now neutral but a bounce over $US80/tonne would not surprise.
 
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 21/08/2016. 9:00AM.
 
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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