Market Matters Report / Market Matters Weekend Report 22nd November 2020

By Market Matters 22 November 20

Market Matters Weekend Report 22nd November 2020

Market Matters Weekend Report 22nd November 2020

Global equities had a mixed week with the ASX200, Europe and Asia all managing to rally albeit with diminishing momentum while the US indices struggled, the Dow closed the week down over 400-points / 1.5% compared to the ASX200 which rallied another +2%. With our macro market view still on point I wanted to avoid a weekend report full of repetition hence at times I have attempted to look at things from a slightly different angle in an effort to clarify / reiterate our market outlook into 2021 while making the report fresh and hopefully more interesting.

Firstly its important to recognise MM is bullish risk assets into 2021 hence any selling across our portfolios is likely to be accompanied with buying (a switch) or planned buying not too far down the track i.e. we currently feel the biggest risk to investors is losing their market exposure, this month’s +10% rally by the local market demonstrates the point perfectly. The “easy trade” is still moving to cash because of worries around social and economic backdrops such as valuations, COVID or China but at least for the next few months MM believes central banks and their printing presses will win the battle – remember “don’t fight the Fed”.

Hence the obvious question I can imagine many subscribers are thinking is how far and how long will stocks rally, to answer this I have looked at Amazon (AMZN US) a top performing US stock over the last 5-years which has often led the index, assuming we receive no stock specific market sensitive news into Christmas we will continue to use it as one of our points of reference for major indices look moving forward:

1 When we stand back and look at AMZN its simply having a rest after doubling in 2020, a healthy consolidation in our opinion. At this stage I can see at least another 15% upside for AMZN, implying there’s no hurry to reconsider our fully invested market stance.

2 How long until we feel it will take to make fresh all-time highs is easy – no idea! Our only thought is considering how much upside we are initially targeting for AMZN at least Q1 of 2021 would appear logical.

Our initial target for AMZN is ~15% higher. (AMZN US) Chart

The ASX200 has now rallied over 10% this month with further gains appearing on the cards this week following strong moves by the resources overseas on Friday e.g. BHP closed up over 60c. At MM we believe the ASX will continue to be one of the best performing equity markets moving into 2021 aided significantly by both ourselves and China currently having COVID under control, especially when compared to Europe and the US. Having traded sideways for almost 6-months the current breakout could easily be in its infancy helped by the current recovery in the heavyweight banks.

Assuming we are correct that AMZN will rally ~15% and the Australian market will continue to outperform it becomes easy to envisage the ASX200 making fresh all-time highs in 2021. Hence our view mentioned earlier that MM wants to remain pretty mich fully invested in stocks leads into to the next question, which are the best stocks / sectors to own?

MM remains bullish the ASX200.

ASX200 Index Chart

A quick glance at the Australian 3-year bond yield below should at least prompt market doubters to reconsider their view, money has never been so cheap with the Australian 3-year bond yield trading basically at the RBA’s 0.1% official cash rate enabling banks to offer fixed 4-year mortgages below 2% improving affordability almost beyond belief. Australians mortgage rates have halved in recent years helping affordability and serviceability both are bullish housing prices and the economy in general. Putting things into perspective, Australian 30-year yields are now trading well under 2%, beneath where the 3-years were in mid-2018.

With the RBA committed to holding 3-year rates down for at least the next few years it feels likely that interest rates will now remain lower for longer creating a major tailwind for Australian equities.

Equities remain extremely attractive compared to term deposits while inflation remains dormant.

Australian 3-year Bond Yield Chart

This week I’ve looked at 3 macro pictures that continue to dictate current / future tweaks to the MM Portfolios.

1 $US has further to fall.

We’ve been monitoring the $US Index for months and it continues to dance our tune, which brings with it a couple of important correlations:

1 A weak $US is historically bullish commodities such as copper, gold and crude oil.

2 Equities have enjoyed a depreciating $US since March.

Hence MM is remaining patient with regard to any selling, especially in the resources sector, a sharp spike lower by the $US is likely to see MM tweak at least a couple of our portfolios.

MM remains short term bearish the $US Index.

$US Index Chart

Accordingly we have held onto global copper miners (COPX US) position which has been “on watch” for a number of weeks after it made fresh 2020 highs but it continues to deliver as we afford it room to rally, it’s unlikely we will take profit on this position until we see a spike lower by the $US Index.

MM remains short term bullish the COPX.

Global X Coper ETF (COPX US) Chart

2 The bulls are being washed out in the US.

Only last Wednesday we pointed out that US stocks were getting over cooked short-term with all of the stock market sentiment indicators which MM monitors rallying to contrarian sell levels, only 3-days later following a few down days by the S&P500 and much of the excessive bullishness has already been washed out as is illustrated by the chart below. Clearly, we are not trading at “screaming buy levels” but it won’t take too much further downside to switch the sentiment in favour of the bulls, providing an excellent platform for stocks to rally into Christmas.

However it’s important for subscribers to remember that the ASX is independent from the US market in fact being far more correlated to Europe – at MM we believe that both Australia and Europe will outperform the US into 2021 but obviously a strong US does provide a steadying hand for local stocks.

MM remains bullish US equities into Christmas and Q1 of 2021.

AAII US Investor Bullish Sentiments Chart

3 After many years Fund Managers like Value stocks.

Last week we saw Novembers Bank of America Fund Manages Survey and not surprisingly it mirrored the months outperformance by value stocks over growth e.g. banks rallying while tech struggled. The standout positioning showed a move into small caps and emerging markets which has a healthy positive correlation towards our own ASX. The news of 2 COVID vaccines is helping drive the recovery story headed by travel and energy stocks plus of course the banks.

In our opinion this catch up has a lot further to unfold, as the chart below illustrates, hence MM portfolios have been skewed this way and its likely to have an impact on further tweaks moving forward but as we showed with AMZN earlier we are also bullish tech, we simply see less upside for the sector although not necessarily on the individual stock level.

US Russell 2000 v NASDAQ 100 Chart

Actions MM is considering across our portfolios.

This week I have attempted to be more succinct with our picks as we anticipate being more pedantic into Christmas following a number of actions in recent weeks.

1 MM Growth Portfolio

After recent tweaks MM is now holding 5% cash in our existing Growth Portfolio, this aggressive stance feels correct with the main question being around portfolio mix : Click Here

RIO Tinto (RIO) $99.45

MM sold RIO back in August above $103, it may seem strange to some that we now regard it as a buy less than 4% below our exit level but you should also bear in mind that the ASX200 has rallied ~500-points in this time making RIO a major laggard over the last 3-months. However we are not actually considering taking a fresh position in RIO as opposed to increasing one of our current resources positions with South32 (S32) standing out,  it looks well positioned for another ~15% upside i.e. actually better than RIO.

RIO Tinto (RIO) Chart

South32 (S32) Chart

2 Income Portfolio

Following on from Wednesdays Income Report subscribers know we are currently comfortable with our holdings and 4% cash position : Click Here

However if we do tweak further into Christmas its likely to be towards the resources sector, heavyweight RIO we touched on above is forecast to yield almost 6% fully franked over the next 6-months, an extremely healthy yield in today’s environment.

3 International Portfolio

Unfortunately as we touched on previously we’ve been a touch too fussy decreasing our tech exposure to increase banking / resources but even though the vaccine news has reduced the price differential appeal slightly our, view remains that the sector switch is now in play for a major move on the relative performance front hence we are still looking to migrate the current International Portfolio at least partly away from tech : Click Here

Sell / reduce:

The picture in large cap US tech is very similar across most stocks, we are considering taking profit on one at this stage, similar to recent reports

1 – Google Alphabet (GOOGL US) looks solid, but we believe taking the +40% profit and reallocating elsewhere makes sense considering our macro view.

2 – Visa (V US) is continuing to struggle above $US200 and were are considering taking the small profit to increase thee positions mentioned below.

Visa (V US) Chart


Wells Fargo (WFC US) – a contrarian call but we can see WFC recovering ~40% into 2021 making it an exciting risk / reward aggressive play.

Wells Fargo (WFC) Chart

2 Alibaba (BABA US)  – After the Chinese government flexed their muscles we have seen BABA correct over 20%, we believe this is a great buying opportunity over the medium term.

Alibaba (BABA US) Chart

4 Global Macro ETF Portfolio

No changes last week with our cash position sitting at to zero after buying the Vanguard FTSE Europe ETF with a small 4% allocation: Click Here


1 – We are looking to increase our VGK position from 4% to 10%.

Vanguard FTSE Europe ETF (VGK US) Chart

2 – Due to our positions being a touch one directional at present plus we have zero cash we are comfortable taking a ~30% profit on half of our Short VIX position.

ProShares Short VIX Short-term Futures ETF (SVXY US) Chart

3 – Similarly in line with earlier comments around the growth stocks and are ETF positions being skewed in the same direction we are looking to take profit on 50% of our Invesco QQQ Trust (QQQ US) above $US290 with the current intention of letting the balance run – a slight tweak to previous thoughts.

Invesco QQQ Trust (QQQ US) Chart


No change, equities are breaking out to the upside, we remain bullish the indices into 2021.

Have a great Sunday!

James & the Market Matters Team

Our Holdings

Our positions as of Friday. All past activity can also be viewed on the website through this link. 

Weekend Chart Pack

The weekend report includes a vast number of charts covering both domestic and international markets, including stock, indices, interest rates, currencies, sectors and more. This is the engine room of our weekend analysis. We encourage subscribers to utilise this resource which is available by clicking below. 

Have a great Sunday!

James & the Market Matters Team


Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.


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