Market Matters Report / Market Matters Weekend Report 29th May 2016

By Market Matters 29 May 16

Market Matters Weekend Report 29th May 2016

Market Matters Weekend Report 29th May 2016

 

Overview
 
Last week, the ASX200 rallied  a solid 1% with all sectors except retail and transportation contributing to the advance. The local market reached its highest level since August 2015 and is attempting to break clear of the 5400 resistance and psychological area. Considering our positive short term outlook for US equities, we believe that the local market will break higher with a potential further 3-5% upside. Australia is now approaching the end of the financial year and this will dictate a number of investment decisions over the coming weeks. We have mentioned some of the likely targets for tax loss selling but the other side of the coin is also likely, but gets less media coverage. Fund managers are not surprisingly looking for performance and as we all know it's been a tough time with the local market down 6.4% over the last 12 months. Simply, stocks that have enjoyed a solid financial year have a very high probability of enjoying a relatively strong June,  just like the underperformers often get sold off. Why would fund managers sell the few stocks that are making them look ok / good? Hence stocks like Aristocrat, Domino's Pizza, Treasury Wine, Cochlear, Medibank Private, James Hardie, Vocus and CSL are likely to remain strong in the near term and we witnessed this very clearly last week with all, but one of these stock up nicely.
 
There are some very interesting forces presently at play when we look at valuation matrices and this requires careful evaluation. The traditional EPS (earnings per share) measure of value has reached expensive / dangerous territory although we have previously remained at these elevated levels for 3-6 months prior to correcting. While EPS estimates are slowing turning up which supports stocks it's the sheer weight of money on the sidelines and record low interest rates that has  pushed equities to fresh highs for 2016. The market is factoring in a 100% chance of another rate cut by October and 25% chance of a cut by March, that will have the cash rate at either 1.5%, or even 1.25% - bad news for people living off the interest from cash savings. Term deposits are likely to fall under 3% while NAB shares are currently yielding 7.25% fully franked = relative support for stocks. The combination of falling bank funding costs and the mass of retail money sitting in bank deposits (over $900bn) should also provide support for bank earnings / dividends going forward. The massive over subscription for the recent Westpac notes issue illustrates perfectly that some of this money is looking for home and some of it is likely to move into stocks chasing the significantly higher yields on offer.
 
 
ASX200 Weekly Chart
 
 
The S&P500 remains on track for the fresh all-time highs that we have been forecasting for 2016, the fun but dangerous time are approaching. Short term things are a little tricky as we didn't get the pullback back towards 2000 that we have been looking for, either the market is much stronger than we thought, or its recent consolidation is not over - time to remain open-minded. However we remain firmly of the opinion that US stocks will have a "blow off" top as some of the weight of cash on the sidelines is forced back into equities - unfortunately we need people to be long for a top! Please remember we are then forecasting a 20-30% correction for US stocks - time for Market Matters to really earn its money.
 
 
S&P500 Monthly Chart

 
 
Gold is also correcting as we have been patiently waiting for, the hard decsion is when to pull the trigger and accumulate the underlying gold stocks. Ideally gold will dip under $US1200/oz next week which is our first objective and will represent an 8% correction, this is likely to spark our first foray back into the sector. Hopefully this will enable us to start accumulating Regis Resources (RRL) under $2.90 (a ~15% correction) but note we hope to be averaging down towards $2.50 hence we will not be investing too many funds at the initial purchase level.
 
Gold Monthly Chart
 

Regis Resources (RRL) Weekly Chart
 
 
Standout technical chart of the week
 
 
Last week we featured another insurance stock Suncorp, only for it to receive some poor news in the week and close down 2.4% in an up week. However, the other stock we currently like in the sector is "wealth destroyer" of recent years, QBE Insurance. Technically QBE looks headed for at least $15 with stops $11.50, excellent risk reward. hopefully second time lucky in the sector!
 
Summary

Sorry but again no major change, short term we are positive the $US and hence neutral / negative commodity prices in general - oil may be the exception here. We still believe US stocks will form a "blow off"  top, likely to be ~8-10% higher, prior to a major correction. The ASX200 is likely to be dragged higher by the combination of US stocks and relative yield.

Watch closely for Market Matters alerts via SMS and email.
 
What Matters this week
 
The ASX200's should open 15-20 points higher on Monday after a positive lead from the US. In theory it should be a quiet start to the week with the US closed on Monday night for Memorial Day.

Potential Investing opportunities for the coming week(s)

Exciting opportunities remain thin on the ground at present which is not surprising with the ASX200 around 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 in general. We are watching any potential "tax loss" selling in June that may create buying opportunities plus gold is approaching our initial buy level of $US1200/oz.

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:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-portfolio-thursday-12th-may-2016
 
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 and probably very soon! 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
 
European Indices
 
European Indices enjoyed a far better week as they played some catch up to the US indices, probably aided by a BREXIT looking less likely.
 
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
 
We the exception of Chian the Asian indices had a far better week, similar to the moves in Europe. Currently China remains in the doldrums treading water while other indices rally.
 
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 again remained firm last week with ANZ leading the way.
 
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 one / maybe two rate cuts for Australia. We are targeting the ~65c region from here.


Chart 59b– The $US Index Monthly Chart
 

 
Commodities
 
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
 

 

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 29/05/2016. 12:00PM.
 
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