Market Matters Report / Market Matters Weekend Report 26th June 2016

By Market Matters 26 June 16

Market Matters Weekend Report 26th June 2016

Market Matters Weekend Report 26th June 2016

 

Overview
 
Friday was one of those amazing days in the market you never forget, up there with the GFC, 9/11 and of course the 1987 crash. The vast majority of people, including ourselves, got the BREXIT result wrong - we anticipated a small "Remain" majority. This report has probably taken more thought than any we have written since the inception of Market Matters but that tends to happen when markets and economies move into unchartered waters. We will not bore you with many details of the referendum as we are sure you have already read / watched numerous accounts of Fridays vote but more importantly focus on what now for markets.  
 
For those who do want more information about BREXIT itself, here’s a link to a great article on Bloomberg which summarises the event and gives another list of very good reference points for further insight.
 
From our perspective, a huge amount will be written/discussed/pondered about this outcome however a few points have clearly caught our attention as we started to evolve our thoughts / plan for next week, the "End of Financial Year" (EOFY) and beyond.
 
On Friday the ASX200 tumbled 167 points (3.17%) on its biggest volume in 5 years but only closed down 0.9% for the week. The US S&P500 was limit down* when the ASX200 was open but managed to recover 1% from its lows to end the week down only 1.6%. The UK FTSE closed down only 3.15% with its futures rallying an amazing 7.5% from their lows while the Euro Stoxx Index was down 8.6% = large overall concerns around the EU. While the British Pound hit 30-year lows it only closed down 8%, around half of most economist's predicted. Finally interest rates fell sharply as confidence in the health of the world economy took a dramatic turn for the worse - Australian 10 year bonds went under 2%, US 10 Years hit 1.404% and German 5 years hit -0.532%. Overall last week's moves in stocks look relatively quiet until you focus on the individual days!

* Limit down is when as market is closed unless it trades higher, it cannot trade lower.
 
Most articles we have read over the last 48 hours has described this plunge in global share markets as a buying opportunity and it undoubtedly will be in some stocks however caution is also warranted as markets dislike uncertainty; the BREXIT will take time to unfold and be understood, however our early thoughts are that the implications financially will be limited. As we wrote on Friday afternoon, this is a political event not a financial one and very importantly, this is not a credit event as was the case with the GFC. On Friday we saw very big moves in companies that derive their earnings from the UK given the sharp depreciation of the British Pound and the impact this has on the repatriation of profits. Further afield they’ll be mixed impacts which will provide market volatility however in our view this will not be the start of something more sinister.  
 
When we look at the ASX200 technically it now needs to close back over 5200 to show some bullish signals but it's likely to take a while to regain the confidence to break 5325 where it was on Friday morning. As an overall market (post Fridays panic) we prefer to wait and see a few more days price action to feel confident in identifying technical areas to buy or sell. After all, we can all muse about the potential impacts and have our own ideas about what should/shouldn’t happen, however in times like this, it’s clearly best to be guided by price/money flow into different assets/stocks etc.  
 
ASX200 Daily Chart 
 
Before we move onto individual stocks let’s look at the US market where the picture remains surprisingly positive medium term - Fridays fall hardly registers on the monthly chart. We remain bullish the S&P500 targeting fresh all time highs in 2016 but a few weeks consolidation back towards the  1975-2000 region would not surprise i.e. a further 2-3% correction.
 
The US S&P500 Monthly Chart 
 
Today we’ll review our current Market Matters portfolio – the stocks we actually own ourselves, posing the question of whether we should SELL, HOLD or ADD more. We have 11 stocks and a cash weighting of 13.5% - down from over 30% recently. Flexibility is king in both investing and trading during volatile times like this and the risks of leverage from margin trading become very apparent. In our own portfolio, we will be taking the following steps
 
Commonwealth Bank (CBA) 12% portfolio weighting , $72.57 current price; The banking sector got walloped on Friday with our Bank Index down 5.9% and the overseas moves will not help on Monday.....Lloyds -21%, CitiGroup -9.4% and Deutsche Bank -14%. A quick sharp bounce in CBA looks unlikely but a 5.8% fully franked yield should be supportive, a HOLD.
 
ANZ Bank (ANZ) 10% portfolio weighting, $23.44 current price; Similar to CBA with the yield at 7.5% fully franked, another HOLD.
 
CSL Limited (CSL) 5% portfolio weighting , $106.75 current price;  One of our favourite stocks, even with 5% earnings from the UK, our original plan was to accumulate into weakness and this has not changed. We will ADD at $100 and $95.
 
Suncorp (SUN)12% portfolio weighting, $11.84 current price; We remain bullish SUN enjoying the 6.8% fully franked yield but our 12% holding is adequate. a happy HOLD.
 
Westpac Bank (WBC) 10% portfolio weighting, $28.34 current price; Probably one bank too many at the moment but again 6.6% fully franked is attractive. Another HOLD but we may consider reducing one of our banks in weeks to come.
 
Graincorp (GNC) 5% portfolio weighting, $8.59 current price; We are comfortable with this relatively small holding, HOLD but stops at $8.35.
 
Macquarie Group (MQG) 5% portfolio weighting, $71.20 current price; We like MQG's future income stream we will look to ADD to our position under $70.
 
Seek (SEK) 7.5% portfolio weighting, $14.88 current price; We are watching this one carefully and it is a candidate to potentially sell / reduce given the market is questioning their recent acquisition in Asia & Brazil, still a HOLD but watch carefully.
 
Origin Energy (ORG) 10% portfolio weighting, $5.61 current price;  We remain comfortably long, HOLD but it needs to be closer to $5 to add.
 
Henderson Group (HGG) 5% portfolio weighting, $4.46 current price; We considered taking profit and then it was gone. We are now down over 6% and with over 60% of their assets in the UK HGG may take time to recover, SELL ideally a bounce towards $4.60 before doing so. What for alerts on this holding next week.
 
CSR Ltd (CSR) 5% portfolio weighting, $3.64 current price; We remain comfortable with CSR but will not be adding to the position - HOLD.
 
Please note; BUY prices have not been included intentionally. The investment decisions now should not be based on old information. Markets are dynamic, and circumstances change. If we are tied to only selling stocks in profit or not selling stocks for a loss, we lose flexibility and this hurts longer term performance.
 
Standout technical chart of the week
 
The Hang Seng Index remains bullish targeting at least 23,000, a clearly good sign for Asian Indices.
 
The Hang Seng (Hong Kong) Weekly Chart 
 
 
Summary
 
We remain bullish, especially US equities but after BREXIT portfolios will need tweaking to avoid too much exposure to the uncertainty around Europe. However considering our positive view on the US and some Asian Indices we do NOT believe it's time to panic and sell all stocks, just remain prudent on the size of trades / investments.
 

 
What Matters this week
 
Importantly, the ASX200's should open more or less unchanged on Monday after the US and Europe traded within expectations. With BHP looking to open up 70c we will expect a positive bias to kick in unless the banks totally fade into the sunset.

Potential Investing opportunities for the coming week(s)

We are looking to add to CSL /MQG and to sell HGG.

Watch out for trading alerts.

Potential Trading opportunities for the coming week
 
No surprises from a trading perspective.  Markets are likely to remain choppy - we recommend sitting on ones hands for a few days or trade smaller than usual.
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-23rd-june-2016/
 
Not surprisingly our portfolio came under significant pressure on Friday, this has been addressed above.
 
 
Australian ASX200
 
Amazingly the ASX200 was down less than 1% last week BUT it felt way more after Friday’s session!
 
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 surprisingly remain bullish targeting fresh all time highs in 2016 even after BREXT, the correction is currently just a minor pullback of the rally since January.
 
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 Monthly Chart
 
 
Chart 10c – 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
 
 
European Indices
 
European Indices remain very tricky post the BREXIT vote, ironically the only one which looks ok at present is the UK FTSE.
 
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 remain tricky after BREXIT but appear neutral with a slight positive bias.
 
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 but it's the Banks renewed weakness into the end of financial year that’s hurt the ASX200 the most.
 
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 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 / maybe two rate cuts for Australia but recent strength has been courtesy of a weaker $US. We are eventually targeting the ~65c region from here.
 
 
 

Chart 59b– The $US Index Monthly Chart
 
 
 
Commodities
 
Gold has rallied strongly from multi-year lows last December but has now reached our initial target area hence short term caution is warranted, especially if BREXIT panic subsides. Ideal buying area is ~$US1200/oz.
 
Copper remains in a negative downtrend on a longer term basis
 
Crude Oil 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

 
 

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 26/06/2016. 9:00AM.
 
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