Market Matters Report / Market Matters Weekend Report 22nd May 2016

By Market Matters 22 May 16

Market Matters Weekend Report 22nd May 2016

Market Matters Weekend Report 22nd May 2016


Market Matters Weekend Report
Last week, the ASX200 gained 0.4%, slightly outperforming the S&P500 which was up 0.3%. What sounds like a quiet week, was more interesting when we switch our attention to individual sectors, with the Banks rallying 1.9%, Energy up 1.9% and Healthcare up 3.2% being some solid performers. We know it feels a very volatile and scary time for many investors at present, but the fact is its actually been the opposite with the US S&P500 trading in the same ~15% range since October 2014. Overall we feel this is not a bad performance, considering the economic and geopolitical concerns that confronts us on a daily basis. We remain of the opinion that US stocks will push to fresh all-time highs in months to come, especially with so many investors sitting in cash looking to buy various assets at discounted prices to today's levels. A number of investors are understandably concerned that the US Fed is about to start raising interest rates from 0.5%, but with US stocks yielding around 5% from a combination of company buybacks and traditional dividends, equities are remain relatively attractive.  It is this same simple yield comparison that is supporting Australian stocks at present with term deposits ~3% unfranked, but NAB shares yielding 7.26% fully franked.
S&P500 Monthly Chart
We would not be surprised to actually see a US rate rise in June / July be accompanied by a leg up from US equities, as the uncertainty is removed. When we simply consider the last 15 years, higher interest rate has not meant lower equity markets. US stocks enjoyed a solid 4 year rally from 2003 to 2007, prior to the GFC. Noticeably, during this excellent time for stocks, US interest rates were ramped from 1% to over 5%. However, it's also clear from the chart below that the recent 8 year bull market from stocks has been strongly assisted by basically "free money". The point we are trying to make is be open minded around stocks and pending rate rises in the US. Our current view is the current bull market will be undone by either China or the market's perception that Central Banks can no longer hold the world economies above water, not rising US rates...Donald Trump may of course be the wild card.
S&P500 v US Interest Rates Monthly Chart
Where we did see some action last week, was from the $US, US interst rates and resources as the market changed its mind on the timing for an interest rate rise in the US. In the middle of last week, the FOMC (Federal Open market Committee) minutes suggested rate rises in the US may be much closer to hand than the market was considering. Our belief is we will now see the $US rally above its recent highs, highly likely sending commodity prices lower at the same time.  We have been watching / trading gold carefully in 2016 and we feel it has now comenced a downleg that should take the precious metal towards the $US1200/oz area i.e. 4-5% lower. Due to this general view for commodities and the $US, it is unlikely we will buying / trading resource stocks over coming months and will be monitoring our Origin (ORG) holding very carefully.
Please note if the $US does unfold how we have illustrated below there is likely to be one of the best buying opportunities for resource stocks for many years in the next 6-9 months. We reiterate patience, in the investing timeframe this is not a long time to wait to see how things unfold.
Over coming months, forecasting the ASX200 is very hard as we like banks and the market in general, but not resources as mentioned above. Our "best guess" is slightly higher prices as the market polarises, but we will unfortunately probably underperform the US.
$US Index Monthly Chart
Standout technical chart of the week
Suncorp (SUN) has been one of favourite stocks for a long time and we remain bullish, targeting ~$16 i.e. 20% higher. SUN is currently yielding ~6% fully franked which is extremely attractive if it also provides some capital gain. One way for SUN to reach our target area would be another yield chasing frenzy, that will be an interesting one. Another fact around SUN that we like is its very strong correlation to the US S&P500 since the GFC, as can be seen above. It looks highly likely that we will be correct on both counts to be positive US stocks and SUN, or wrong on both.

No change, for 2016 we are positive the $US and hence neutral / negative commodity prices in general. We no longer believe that US stocks will top out in 2016, more likely 2017, likely to be ~8-10% higher. However this view has a close stop on where we will change our opinion, the S&P500 should not accelerate under the 2000 area, only 2.5% below Fridays close.
* Watch closely for Market Matters alerts via SMS and email.
What Matters this week
The ASX200 should open marginally higher on Monday with a positive lead from the US, being offset by a poor night for resource stocks.

Potential Investing opportunities for the coming week(s)

Exciting opportunities remain thin on the ground at present which is not surprising, with the ASX200 close to the 5400 resistance area. However, as we remain positive US equities at present we recommend investors should have a comfortable exposure to equities with the exception of the resources sector.

* Watch out for trading alerts.

Potential Trading opportunities for the coming week

From a trading perspective, markets are likely to remain yet again choppy next week and trading size should be set accordingly. However, after correcting close to our target the S&P500 would not surprise us if it rallied strongly at some stage in coming weeks. We remain buyers of equities on any weakness, with stops on volume under 2000 for the S&P500.
Portfolio / Trade Holdings
The Market Matters Portfolio:
Cash position remains at ~35% after buying Graincorp (GNC) last week.
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

Chart 14b – The Canadian Composite Index Daily Chart
European Indices
European Indices continue to struggle compared to their American counterparts - perhaps the potential exit of the UK from Europe is causing understandable concern.
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 had a very quiet week, which was an ok result after poor economic data from China last Saturday - China is threatening fresh multi year lows. The Emerging Markets Index reached our target area and has commenced a pullback at a minimum.
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. Banks remained firm last week as ANZ and Westpac went ex-dividend.
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 Hifi (JBH) Monthly Chart

Chart 58– Harvey Norman (HVN) Monthly Chart

Chart 59a– Australian Dollar (AUD) Monthly Chart
The $A has continued to fall as the $US rallies and markets factor in two rate cuts for Australia. We are targeting the ~65c region from here.

Chart 59b– The $US Index Monthly Chart
Gold has  rallied very well from multi year lows last December but has now hit our initial target area hence caution is warranted, we anticipate a pullback towards $US1,200 region.
Copper remains in a negative 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. 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

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

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