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

By Market Matters 24 July 16

Market Matters Weekend Report 24th July 2016

Market Matters Weekend Report 24th July 2016

 

Overview
 
Last week's global equities remained strong, but not surprisingly with diminished momentum - the ASX200 advanced 68-points (1.3%) and the Dow 54-points (0.3%). After the explosive nature of the rally since late June, we consider a few days / weeks consolidation as a positive. We remain bullish the ASX200 while the 5400 support area remains intact and will look to buy a ~125-point retracement. Our current focus is identifying stocks that may provide a "quick" 10-15% return, with good risk / reward, as we slowly reduce our overall stock market exposure - while we are currently in "sell mode" we reiterate the feeling that patience is warranted. If the ASX200 enjoys the smallest quarterly range since late 2014, we are still on track for the 5625 area before the end of September, assuming 5148 is the low of the quarter.
 
The last 5 days have proved relatively uneventful hence this week's report focuses on some specific situations we are watching carefully both on the overall index and individual stock level.
 
ASX200 Daily Chart
 
 
 
We are continuing to use the US stock market as our guide to when is the ideal time to exit equities. Market Matters has previously swung between cash levels of around 50% to 9%. When we believe this current bull market is close to termination, be prepared for much higher levels! As subscribers know, our view is we are currently in the termination "phase 5" of the bull market (226% advance) since March 2009. Our current best guess for the end of the current advance is ~2400, or 10% higher, but we remain mindful that a fall back under 2100 will put this target area in serious doubt.
 
We are also aware that if the S&P500 repeats the range of last quarter, a high around 2200 is targeted by the end of September, only another ~1% higher. However, our preferred scenario for this quarter is the S&P500 enjoys a range similar to the volatile 3 quarters after September 2015 i.e. ~250-points, hence targeting the 2325 area before the end of this September - i.e. some breakout extension as the "Fear of Missing Out" (FOMO) gains momentum.
 
 
US S&P500 Monthly Chart
 
 
 
This week, we pointed out that the financial, followed by the health care, sectors have been the noticeable laggards for the US S&P500. What is extremely exciting for us, is how clear the technical picture appears for the US Healthcare Sector - it is targeting fresh highs in the 925-950 region, around 7% higher.

Assuming the picture unfolds as expected, we will be significantly reducing our equity exposure as the sector approaches the 925 level.
 
The Banking Sector as the major underperformer for US stocks will also be continuously evaluated for signals, but currently, more strength is required to generate short term buy signals - perhaps the banks will lead the last hurrah for stocks as investors look for anything that's perceived as cheap.
 
 
US S&P500 Healthcare Sector Quarterly Chart
 
 
 
Last week the Emerging Markets Index closed at fresh 2016 highs, our preferred scenario is it extends for at least ~10%. The bullish view for emerging markets is supported by our positive view for the Hang Seng, targeting a minimum 5% advance from Friday’s close. Australia and especially our resource stocks have a strong correlation to the Emerging Markets, hence our view that local resource stocks like S32 have further upside as investors search for value in a relatively expensive market.
 
South32 was spun out by BHP when it wanted to focus its efforts on oil / iron ore while moving away from coal, aluminium, manganese, silver, zinc, lead and nickel. Many of these metals like nickel and silver are now the flavour of the month! We purchased S32 after it corrected 8-9% and are targeting over $2 for S32, which would yield a nice ~10% return.
 
Emerging Markets ETF Weekly Chart
 
 
Some very diverse stocks that performed very well last week were Magellan Financial, Aristocrat Leisure, Oil Search, Origin, Woolworths, Sirtex, CSL, Lend Lease and Ramsay Healthcare - a reminder that we must remain very open minded when picking stocks for short, sharp gains.
 
 
Standout technical chart of the week
 
We are sure a few people wondered why we recently pulled the trigger and bought South32 (S32) and not Newcrest Mining (NCM) and/or Regis Resources (RRL) - does not to look clever, considering Friday’s closing prices! While we remain committed to buying the gold sector in 2016, we felt that there was a strong possibility of accessing at lower prices in early August. NCM looks to be experiencing a correction very similar in characteristics to that in October / November 2015. If this continues, we are hoping / planning to buy NCM around $22 and RRL ~$3.40, let's hope we are not trying to be too clever.
 
Newcrest Mining (NCM) Monthly Chart
 
 
Regis Resources (RRL) Weekly Chart
 
 
Summary
 
We remain bullish, especially US / Emerging Markets. Taking into account our positive view on the S&P, US Healthcare Sector and some Asian Indices we do NOT believe it's time to sell all stocks, just remain prudent on exposure. Stocks that have had a relatively tough 6/7 years are likely to perform well over the next 6 months.
 
Now US equities have punched through to fresh all-time highs; our strategy has become clearly defined - we will be wearing our "Sellers Hat" lightening equities exposure into strength but no hurry yet.
 
 
What Matters this week
 
The ASX200's was set to open up ~15 points on Monday; we feel some consolidation is likely to continue.

Potential Investing opportunities for the coming week(s)


We happily ~90% committed to stocks and are expecting to be patient in reducing this position. We are also looking out for good risk / reward opportunities e.g. the resources / gold spaces, even after recent strong gains.

Watch out for trading alerts.
 

Potential Trading opportunities for the coming week

 
Remain long the ASX200 with stops under 5400, buy any "ABC" style pullbacks - simple.
 
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-wednesday-20th-july-2016/
 
We are sitting on 9% cash after last week's purchase of South32 (S32) and sale of Graincorp (GNC).
 
 
Australian ASX200
 
The break over 5400 for the ASX200 has now transformed the resistance level of 5400 into clear support.
                                                                                                  
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 having made fresh all-time highs even after BREXIT. We are still bullish for the next few months / quarters, seeing around 10% more upside.
 
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 Weekly Chart
 

 
Chart 10c – US S&P500 Banking Index Monthly Chart
 

 
Chart 10d – 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 have lost their BREXIT panic and are 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 is starting to look constructive.
 
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 and are bullish led by the Hang Seng which is targeting further 5% gains.
 
The Emerging Markets Index is also looking excellent targeting a further +10% 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 is starting to make some decent gains, but the Banks must continue to rally - CBA's report in August is likely to be very important for the rest of 2016.
 
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) Daily 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 Hi-Fi (JBH) Monthly Chart
 

 
Chart 58– Harvey Norman (HVN) Monthly Chart
 

 
 
Chart 59a– Australian Dollar (AUD) Monthly Chart
 
The $A has continued to struggle as markets factor in one and perhaps two rate cuts for Australia. A large degree of the recent bounce from the 68c area was 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 strength may continue.
 

 
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 BREXIT concerns subside. Ideal buying is any "ABC" style retracement.
 
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 current consolidation.
 
Iron Ore exploded recently achieving our +$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


 


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 24/07/2016. 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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