Market Matters Report / Market Matters Weekend Report 2nd October 2016

By Market Matters 02 October 16

Market Matters Weekend Report 2nd October 2016

Market Matters Weekend Report 2nd October 2016

Please note there will be no reports on Monday due to Labour Day long weekend.
 
 
The ASX200 was choppy last week trading in a 100-point range before closing basically unchanged. Waves of news around Deutsche Bank (DBA) and also OPEC caused most of the gyrations for equities in both directions. US stocks enjoyed a solid advance on Friday night after speculation that DBA will only need to pay less than half of what the US Dept. of Justice was initially seeking. DBA rallied 6.3% on the night but more noticeably 17% after the bank made fresh all-time lows under 10 Euro following early aggressive selling in the session. While we stick with our view from Friday morning's report that European banks will be stronger over the next 6-12 months we are also confident there is more volatility to come. October is seasonally the strongest month of the year for Australian banks with CBA averaging a 6.6% gain over the month, the relief rally around DBA should set  a decent platform for our banks next week.
 
Ideally from a technical perspective the ASX200 will trade sideways next week after the strong 281-point rally from the mid-September 5192 low- strong support should emerge around 5370 if Fridays early strength does not follow through. With October seasonally very strong for our banking stocks and 43% of our market the Financial Sector it's hard to imagine weakness under this area short-term.
 
ASX200 Daily Chart
 

 
 
OPEC's decision last week from Algeria was exactly what we were looking for to justify our bullish view on the energy sector. Saudi Arabia have made a complete 360-degree change on policy with their agreement to reduce production in an effort to increase the oil price and subsequently address their budget deficit issues. We remain bullish crude oil targeting over $US60/barrel in the months to come.
 
We have 10% of our portfolio in the Energy Sector, around double its index weighting, via Origin Energy (ORG) which is highly leveraged to the oil price.
 
Crude Oil Weekly Chart
 

 
 
Recently markets have been very choppy / tricky and we have found ourselves swung from a bullish stance to bearish and then back again on our short-term view for stocks - NOT something we enjoy and occurs that often. Hence today we have stood back and looked at the market on a medium term basis to put things back in perspective:
 
1. We are looking for a major top for stocks between 2200 & 2400, likely in the next 6-months.
2. The last major top for the S&P500, prior to a 15% correction, was in 2015 and it took 6-months to evolve prior a sharp fall.
3. Hence another 4-5 months of choppy price action with false break outs to the upside followed by shallow retracements is a strong possibility.
4. While this top evolved around the 2100 area for the S&P500 the ASX200 rotated in a similar manner but with a definitely more negative bias.
 
Over recent months we have seen a number of our positions get close to our profit targets prior to correcting with a vengeance e.g. ORG, IGO and CSL. We have discussed in a number of reports that we are in a more "active" style market as this top unfolds hence we will now become less pedantic around our exit targets, especially if our cash position is under 20%.
 
E.g. Sell CSL ~$110.50, BEN ~$11.50 and IGO ~$4.40.
 
If we are correct and a choppy path lays ahead plenty of good opportunities will present themselves to investors with cash.
 
US S&P500 Index Monthly Chart
 

 
Standout technical chart (s) of the week
 
Last week's standout chart of the week led to an excellent trade in RIO, fingers crossed we can match that this week.
 
Fortescue Metals (FMG) has enjoyed a fantastic advance in 2016 of well in excess of 300% from its lows. We believe it's time to take profits and stand back- NB We are not going bearish. We have 2 suggestions where we believe the money could be better put to work depending on your existing holdings and risk tolerance.
 
1. Buy ORG - For investors that are not long ORG like ourselves we believe this represents  a great switch: sell FMG and buy ORG. Note if OPEC reverse their decision on oil production ORG is unfortunately likely to fall fast.
 
2. Buy WES - Wesfarmers (WES) remains bullish targeting ~8% higher prices. WES has some resource exposure via coal. This is a more conservative switch. Sell FMG and buy WES.
 
Fortescue Metals (FMG) Monthly Chart
 

 
Wesfarmers (WES) Weekly Monthly Chart
 

 
Summary
 
Equities continue to "climb the wall of worry" with US stocks only 1% below their all-time high. Our view is this will continue for the next 3-6 months and investors should become more active than usual taking decent profits when they present themselves and considering stocks when they get hit hard.
 
US equities have reached  fresh all-time highs, our strategy remains clearly defined - we are wearing our "Sellers Hat" looking to slowly lighten equities exposure into strength.
 
What Matters this week
 
The ASX200's is set to open up~25-points on Monday, a few days consolidation around the 5400-5450 area looks likely but with risks to the upside.

Potential Investing opportunities for the coming week(s)

We are comfortable with our general asset allocation and will continue to reduce overall index exposure as decent opportunities present themselves.

Potential Trading opportunities for the coming week

We can buy 100-point dips in the ASX200 ideally ~5370.
 
* Watch out for trading alerts.
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-monday-26th-september-2016/

We are happily overweight the banking sector and have recently purchased the Mantra Group (MTR) reducing our cash position to 6%. Also, we liquidated our short-term RIO trade last week for a 43% profit.
 
Australian ASX200
 
The ASX200 again performed well last week again closing over the pivotal 5400 area. A close over 5475 would be very bullish and considering the bullish seasonality for the banks in October it feels close at hand. Short-term the ASX200 feels a bit tougher and a test of 5370 would not surprise.
                                                                                                                  
Chart 1 – ASX200 Monthly Chart
 

 
Chart 2 – ASX200 Weekly Chart
 


Chart 3 – ASX200 Daily Chart


Chart 4 - SPI (Share Price Index) Futures 60-min Chart


Chart 5a ASX200 Banking Index Monthly Chart


Chart 5b ASX200 Financials Index (excl. REIT's) Weekly Chart


Chart 6  Volatility (VIX) Index Weekly Chart

 
Interest Rates
 
Short-term interest rates in the US look ready to move significantly higher but we may see a few more months sideways action first.
 
Chart 7a – Australian 3-year bonds Weekly Chart
 


Chart 7b – The US 10-year Interest Rate Monthly Chart


Chart 7c – The US 2-year Interest Rate Monthly Chart

 
American Equities
 
American indices remain bullish medium term targeting ~6% higher prices, the S&P500 should now hold the 2140 area. The NASDAQ, usually the "leading" US Index made fresh all-time highs last week again implying higher prices across other US indexes.
 
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 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
 
Overall European indices are tricky and neutral, the UK FTSE continues to stand out as the bullish index as it benefits from a weaker pound post BREXIT. Currently, the indices are swinging aggressively on news / rumour flow around Deutsche Bank.
 
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 look ready for a few more weeks sideways choppy style price action. The Emerging Markets look set to pop 4-5% higher.
 
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 had a choppy but net neutral week with  the energy sector strong but financials / insurance & Telco stocks lower. We remain net bullish as banks start their seasonally strongest month of the year.
 
Chart 23 – BHP Billiton ADR ($
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) Monthly Chart


Chart 27b – Independence Group (IGO) 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) Daily Chart


Chart 33 – ANZ Bank (ANZ) Weekly Chart


Chart 34 – Westpac Bank (WBC) Daily 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 39a – Sydney Airports (SYD) Monthly Chart


Chart 39b – Mantra Group (MTR) Daily 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) Weekly Chart


Chart 45a – Seek Ltd (SEK) Monthly Chart


Chart 45b – REA Group (REA) 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 56b– Blackmore's (BKL) Monthly 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 struggled since 2011 falling ~30% against the $US as markets question the strength of the Australian economy post the commodities boom. A significant part of the recent bounce from the 68c area was courtesy of an overall  weaker $US. However the $US has regained some strength in 2016 as higher rates for the US are slowly factored in by markets. We continue to eventually targeting the ~65c region but short-term we now favour ongoing strength for the $A over the psychological 80c area.
 
The $US is 50-50 just here but a kick over 102 would complete a classic advance structure, currently the market is giving us no clues.
 

 
Chart 59b– The $US Index Monthly Chart
 

 
Commodities
 
Gold has now traded sideways in a tight range for the last 3-months, we are 50-50 what comes next at present.
 
Copper remains in a negative downtrend on a longer-term basis targeting prices over 20% lower.
 
Our target for Crude Oil of +$US60/barrel again looks on track after last week's OPEC meeting.
 
Iron Ore has achieved our +$US70/tonne target, technically we remain now neutral / bearish until further development.
 
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 2/10/2016. 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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