Market Matters Report / Market Matters Weekend Report 24th April 2016

By Market Matters 24 April 16

Market Matters Weekend Report 24th April 2016

Market Matters Weekend Report

 

Overview
  • Last week the ASX200 continued its advance rallying 1.5% with the banking sector a major contributor, gaining 3%, and the healthcare sector a laggards.
  • We believe as the market continues to search for "cheap stocks" with its large cash holdings the local banking sector will potentially benefit short term.
  • The Australian Future Fund is a great example now holding ~23% of assets in cash ($26.8bn) this extremely high level of cash is aggressive in its conservatism.
  • Some of the fund managers are likely to be capitulating at present and chasing stocks as their fund performance becomes extremely poor compared to rallying equities.
  • The big question is what will they now be comfortable buying with the ASX200 index over 5200 as this "hot money" searches for some returns.
  • We are now becoming very wary of the advance from the iron ore sector as both BHP and S32 have hit our upside targets.
  • On Friday night iron ore fell 5.9% and as we discuss below, in our "standout charts section", the bulk commodity is now looking bearish technically.
  • S32 has doubled since the panic lows in January and we feel the next decent move is pullback to the $1.40 region - ~15% lower - see chart 1.
S32 Daily Chart
  • The US S&P500 also continued to rally last week gaining 0.5% but the "FANGS" let the side down dragging the NASDAQ 2% lower.
  • We maintain our view that the US S&P500 will see fresh all time highs in coming weeks / months but please remember we are then forecasting a 25% correction for US equities - see chart 2.
  • The S&P500 has actually generated a technical Buy signal, in its current "overbought state" as over 90% of stocks on the New York Stock Exchange have risen above their 10-week moving average.
  • Historically the S&P500 has generated gains over 6% in the following 9 months after this signal = remain long and patient.
  • When we look inside the S&P500 it's the banking sector that looks likely to accelerate recent gains and drag the S&P500 to fresh all time highs.
  • The S&P500 is only 2% below all time highs but the banking sector is 16% below its equivalent high of 2015 - see chart 3.
  • The technical chart pattern of the US banks is very bullish targeting a 20% advance!
  • Our local banks have been battered in 2016 and the index is currently down 9.7% in 2016 compared to the ASX200 being down only 1.1%. Although we think banks will largely range trade for 2016, we must conscious that massive banking underperformance is a definite candidate for "hot money" – thus our short term bias for banks is positive.  

S&P500 Monthly Chart


S&P500 Banking Index Monthly Chart

  • US 2 year yield are pointing to higher rates which should significantly help the banks who were crushed on the ramifications of negative interest rates to their profitability - see chart 4.
  • So we can easily envisage a relief rally but how to play it is trickier as the banks look average medium term.
  • 3 of our big 4 banks go ex dividend in May which is on the horizon to local investors - big fat fully franked dividends!
  • ANZ has the most "bounce" potential as it has been hit the hardest due to its exposure to resource / energy loans and Westpac is the arguably the most solid of the 3 at present.
  • We see good risk / reward short term in buying ANZ, NAB and WBC to capture the fully franked dividends, similar to our successful venture (to date) into Telstra ~$5.

US 2 year4 Daily Chart

Standout technical chart (s) of the week


Today we have actually picked 2 charts for the first time as resources are hot at the moment BUT these two charts are telling different stories:

1.       Iron Ore has now bounced over $US30/tonne just as in 2013, technically we are now net negative with the risk of a significant fall.

2.       Conversely Crude Oil has now cleared the $US42/barrel area, even after negative news from Doha. We are now bullish crude oil targeting the $US60/barrel region.

The simple conclusion is we now believe any trading opportunities in the resources space should now be via crude oil as opposed iron ore.

Summary

  • Now change, It's simple - higher before lower......we now see another 4-5% higher in equities prior to a decent correction but the risks are looming on the horizon.
Watch closely for Market Matters alerts via SMS and email.

What Matters this week
The ASX200's open on Tuesday, after Anzac Day is likely to be determined by overseas movements on Monday night.

Potential Investing opportunities for the coming week

 
  • We still like QBE as mentioned last week but are a touch wary due to our current exposure to the sector via Suncorp.
  • We will looking carefully at opportunities in the 3 banks going ex-dividend in May.
  • We will be looking carefully at the oil sector, especially with Woodside and Origin which may play catch up with the strong Oil Search.


* Watch out for trading alerts.

Potential Trading opportunities for the coming week
 
We are neutral just here from a trading perspective.
Cash position now down to ~34% after Bellamys investment but a little higher than ideal for the current market position.

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 this month's lows is required to turn this view negative / neutral.

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 Index Daily 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 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.
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 Char

 

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 may easily reach the 80c area prior likely further weakness.

 
 Chart 59b– The $US Index Monthly Chart

 
Commodities

Gold has recently rallied very well from multi year lows but may need poor news from equities to kick much higher as the recent weakness in the $US has had limited impact which should be a concern for the bulls.

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 rallied very strongly from panic sell off in January but short term its now in the $US40/barrel resistance area.

Iron Ore exploded last week achieving our $US60/tonne target, we are now neutral.

Chart 60 – Gold Monthly Chart

 

Chart 61 – Copper Monthly Chart

 

Chart 62 – Crude Oil Monthly Chart

 

Chart 63 – Iron Ore Monthly Chart

 
This report contains factual information and does not constitute financial advice. The information is not intended to imply any recommendation or opinion about any financial product.

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 24/04/2016.  5:07PM.
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