Market Matters Report / Market Matters Weekend Report 3rd July 2016

By Market Matters 03 July 16

Market Matters Weekend Report 3rd July 2016

Market Matters Weekend Report 3rd July 2016

 

Overview
 
First we had BREXIT now it's our own Australian election, it appears bookmakers / polls are bordering on another version of two-up! A strong majority government is usually the best result for a country / market, as policies can actually be implemented. After calling this election early the best Malcolm Turnbull can  dream of is an extremely small majority and a toxic senate, unfortunately not a recipe for stability and a healthily run country - we could be in for a tough few years ahead on both the political and economic front.

Our big picture view for US equities remains the same and it looks to be finally unfolding as we have been predicting, even after a BREXIT result. We are targeting two very distinct phases over the next 6-12 months where lots of money can be both made but also lost by the unprepared.
 
1. The predicted rally to all time highs looks to be underway with the S&P500 now sitting only 1.6% below all time highs. With fund managers / investors sitting on record levels of cash a 5-10% explosion to fresh highs can easily be imagined. Forecasting how far markets will rally when they are making all time highs is extremely tough / impossible but a rally through to early 2017 would be our best guess at present.
 
2 After making all time highs we are forecasting a significant correction to the whole bull market advance from the 667 low  in March 2009. Putting numbers on our big picture view if the S&P500 reaches say the 2300 area we will then be targeting a minimum fall of ~600 points / 25% - which is very significant.

At Market Matters our portfolio is sitting on ~16% cash but we are looking to allocate up to 10% into Vocus on Monday if the opportunity arises. Importantly assuming we are correct and equities do punch higher over coming weeks / months we will then be selling reducing our exposure to the market into strength. We believe 2017 will be one of those years where cash and / or excellent stock selection will be required to produce satisfactory returns for investors.
 
US S&P500 Quarterly Chart
 
 
The ASX200 has been a very poor relative performer compared to many on the world stage e.g. the Dow is 2.2% below all time highs and we are miles adrift over 30% below our equivalent milestone. While there are a number of reasons behind this underperformance led by our heavy weighting to banks and the end of the China fuelled mining boom the short term shows no improvement in our position. Hopefully our politics will sort themselves out quickly and not be a hindrance on the overall economy.
 
Unfortunately the best we can see for the ASX200 is a test of the 5500-5600 area BUT we do see a test well under the 4700 2016 lows on the horizon - investors biggest weakness is usually selling and this is the major area that Market Matters believes we can help over the coming 12 months.
 
 
ASX200 Weekly Chart 
 
 
Vocus Communications (VOC) has just made an acquisition of Nextgen for $700m and is due to recommence trading (ex-rights) on Monday i.e. rights of $7.55 to retail investors. We believe that VOC have implemented a positive strategic acquisition at a decent price. Importantly VOC looks inexpensive on 16.3x 2018 earnings relative to growth that is likely over the coming years, compared to TPG on 20.7x.  We are keen buyers anywhere close to $8 on Monday with a +$10 price target.
 
Vocus (VOC) Weekly Chart
 
 
We have adjusted our view on gold stocks over the last 1-2 weeks becoming more bullish the sector and less confident of our pullback target buy areas e.g. Regis Resources (RRL) ~$2.80 and Northern Star Resources (NST) ~$4.10. We are buyers of the next $2.50 retracement in NCM and will evaluate opportunities in RRL and NST at the same time if / when this occurs.
 
Newcrest Mining (NCM) Monthly Chart
 
 
Standout technical chart of the week
 
REA Group was a stock that we thought was ready for a pullback towards $40 but excellent strength has changed our mind over recent weeks - investors must be flexible on their views for markets. REA now looks poised for a sharp move towards $75 and stops can be worked under $55, hence good risk / reward for the buyers.
 
REA Group Quarterly Chart 
 
 
Summary
 
No major change - we remain bullish, especially US equities but after BREXIT portfolios will need tweaking to avoid too much exposure to the likely ongoing uncertainty around Europe. Considering our positive view on the US and some Asian Indices we do NOT believe it's time to reduce exposure to the Australian market, just remain prudent on the stocks we own. Some stocks still look poised to deliver solid returns over the next 6 months.
 
However, once US equities have punched through to fresh all time highs, which we believe is imminent our strategy becomes clearly defined - we will be wearing our "Sellers Hat" lightening equities exposure into strength.
 
What Matters this week
 
The ASX200's was set to open up 25-30 points on Monday but the "messy" election result is likely to dampen enthusiasm early in the week.

Potential Investing opportunities for the coming week(s)

We are keen buyers of VOC close to $8 early next week and are still looking for opportunities / areas to sell our HGG and Macquarie positions.

Watch out for trading alerts.

Potential Trading opportunities for the coming week
 
We are bullish equities and from a trading perspective are currently buyers of any 50-60 points pullback in the ASX200.
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-27th-june-2016/
 
We are sitting on 16% cash with Macquarie and Henderson causing short term discomfort after BREXIT but CSL performing well. If Vocus (VOC) recommences trading on Monday close to $8 we are buyers.
 
 
Australian ASX200
 
The ASX200 has rallied strongly after the BREXIT triggered initial plunge, the index is now within striking distance of the 5300 resistance area.
                                                                                                                  
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 even after BREXT, the recent correction is looking to be just a minor pullback of the rally since January. The Dow is only 2.2% below it's all time high!
 
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 have shaken off BREXIT and are currently looking positive led by the very strong UK FTSE which is making fresh highs since August 2015.
 
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 to have shaken off the BREXIT surprise and are bullish led by the Hang Seng which is targeting further 10% gains.
 
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
 
For the Australian stock market to make decent gains the Banks require a bid tone but that is not apparent at present.
 
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 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 area is ~$US1200/oz.
 
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
 
 

Regards,
The Market Matters Team
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 3/07/2016. 4:00PM.
 
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