Market Matters Report / Market Matters Weekend Report 4th September 2016

By Market Matters 04 September 16

Market Matters Weekend Report 4th September 2016

Market Matters Weekend Report 4th September 2016

Overview
 
Last week was simply awful for the ASX200 leaving us at times scouring the news for reasons for our significant underperformance, the comparison for the week with other major global markets does not make pleasant reading:
 
1. Positive - S&P500 +0.5%, UK FTSE +0.8%, German DAX +0.9%, Japan's Nikkei +3.4%, Hang Seng +1.6%, Canada +1.1% and New Zealand +0.5%.
 
2. Negative - ASX200 -2.6% & China -0.1%.
 
It's not a very pretty picture on any level with our market closing 4.3% below last month's high whereas the US is a just a few points away from its equivalent level. Finding an explanation for the serious weakness within our market is certainly hard on the surface with Asia, the US and Europe plus the resource dominated Canadian market all closing the week clearly in positive territory. It's after a week like the one we've just experienced that it becomes easy to understand Australia's love affair with property as opposed to shares, a very different story to the US. The internals of our market give some insight into the 
weeks story with the banks holding up well but Energy, Telco's and the Resources Sectors all falling well over 3%.
 
Our theory of why the ASX200 has experienced a tough few weeks is explained in the "Standout technical chart of the week" section.
 

Unfortunately, at this point in time it's obviously hard to know if last week was one of those times when our market simply got it wrong and we will play some sharp catch up next week, or are we starting a major correction before our global piers are even showing any weakness. Both the Australian Dollar and Bond markets were firm last week implying no problems on the international level, yet again it was just with our equities.
 
Importantly our market is now neutral technically with a move under 5280 bearish, implying 5611 is a "Major Top" whereas conversely a break back over 5465 brings the 5650 target area back into play - which now feels so far away!
 
ASX200 Daily Chart
 

 
 
The quandary in predicting the local markets direction is that the US remains both relatively clear and nicely bullish. The Russell 2000, small-cap index, looks to be advancing strongly with an eventual target around the 1400 area i.e. over 10% higher. If US stock indices are going to advance between 6 and 10% it's hard to imagine us going down but we did in a real way last week. At this point in 
time the US indices are one reason we are giving our market the benefit of the doubt but caution is warranted.

 
Russell 2000 Monthly Chart
 

 
 
US banks had another strong week rallying over 2% making it an impressive 20% in just 3 months. Our banks are following in a far more banal manner rallying 2.8% last month which was an ok result considering the ASX200 fell 2.3% over the same period. We remain comfortably overweight the banks short-term.
 
US S&P500 Banking Index Monthly Chart
 

 
 
Friday nights average employment data seems to have put the next expected US interest rate rise back to December and that's good news for gold!
 
 
It is now looking highly probable that the gold stocks have completed their pullback, falling just short of our ideal target levels and they are now strong buys:
 
1. Independence Group (IGO) - we own this but a great buy signal will be generated by a close over $3.90 targeting over $4.50.
2. Newcrest Mining (NCM) - NCM looks a strong buy now and we will consider looking at buying October call spreads next week.
3. Regis Resources (RRL) - Similar to NCM, RRL looks great potentially targeting the $4.50 area.
 
*Watch for alerts next week, including via options with NCM for sophisticated investors.
 
Independence Group (IGO) Weekly Chart
 

 
Newcrest Mining (NCM) US$ Index Monthly Chart
 

 
 
In the resources space BHP is not very exciting but RIO is forming a nice bullish set up with an excellent risk / reward profile.
 
We can buy RIO back over $48 with stops under $47, potentially targeting $55.
 
RIO Tinto (RIO) Weekly Chart
 

 
 
Unfortunately, not everything is looking so positive with the Telco's and parts of the Healthcare Sector remaining under pressure, materially to us we have exposure in both sectors.
 
1. The Telco's are being led lower by Telstra which we have been negative for a long time but recently we established a position in Vocus, just under $8. We believe that VOC is cheap under $8 but we are concerned for the sector overall.
 
2. CSL has recently been smacked over 14% and our position that was showing a healthy profit is now underwater. This is a quality company hence we will not panic during current weakness but we may consider taking a small profit back over $110.
 
Standout technical chart of the week
 
The ASX200 is highly correlated to the Emerging Markets Index (EM) / ETF which interestingly has corrected 4.1% over recent weeks compared to 4.3% by the ASX200.
 
We are now bullish the EM ETF with an upside target over 5% higher hence another reason to give our local market the benefit of the doubt at present. This also adds weight to our bullish call on RIO.
 
Emerging Markets ETF Daily Chart
 

 
 
Emerging Markets ETF Weekly Chart
 

 
 
Summary
 
We remain bullish overseas equities but the path for the ASX200 has unfortunately become a little clouded after last week's weakness. We currently like gold and banks as opposed to the Telco and Healthcare Sectors. Simply strength over 5470 will be bullish and under 5280 bearish.
 
Now US equities are trading ~ fresh all-time highs, our strategy has become clearly defined - we will be wearing our "Sellers Hat" slowly lightening equities exposure into strength but no hurry just yet BUT  a break of 5280 will totally change this stance.
 
 
What Matters this week
 
The ASX200's is set to open up ~25-points on Monday, this market needs to hold back over the 5400 area to be constructive.

Potential Investing opportunities for the coming week(s)

We are looking to increase our exposure to the gold sector - likely via either RRL with stock or NCM via options.

NB We already own Independence Group (IGO).

Potential Trading opportunities for the coming week

Same as above, look to get further exposure to gold stocks.
 
* Watch out for trading alerts.
 
Portfolio / Trade Holdings
 
The Market Matters Portfolio:
 
https://www.marketmatters.com.au/blog/post/market-matters-stock-positions-30th-august-2016/
 
We are now sitting on only 3.5% cash after liquidating our CSR position and investing 8% into Bendigo Bank.
 
Australian ASX200
 
Last week's awful performance from the ASX200, including the break under 5400 is very concerning. The market is poised to open back at 5400 on Monday and we want to see strength from this area to remain comfortable with our market.
                                                                                                                  
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
 
No change, the American indices remain bullish short to medium-term. We are still positive for the next few months, seeing ~8% more upside for the S&P500 but note we still believe the next MAJOR move will be down.
 
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 10c – 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
 
The UK FTSE continues to be very strong,  assisted by a weak Pound, and now needs to hold the 6550 area to remain positive. The German DAX is also turning bullish and similarly needs to hold over 10,350.
 
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 positive but importantly initial targets have been met hence right here we are neutral awaiting to see if they can push hard to the upside, probably led by the Japanese Nikkei.
,
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 was a significant underperformer last week and needs to regain some strength quickly otherwise our initial concerns last week will magnify rapidly.
 
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) Monthly 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 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) Weekly 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 struggled over recent years as markets continue to question the strength of the Australian economy, post the commodities boom. A significant part of the recent bounce from the 68c area has been courtesy of a weaker $US. We are eventually targeting the ~65c region BUT the short term relative strength looks likely to continue and frustrate the RBA - we are potentially targeting ~81c from this bounce.
 
The $US is 50-50 just here but a kick over 102 would complete a classic advance structure, perhaps fresh signals of Fed rate hikes ahead will fuel this advance.
 

 
Chart 59b– The $US Index Monthly Chart
 
 
 
Commodities
 
Gold has rallied very well from multi-year lows last December but has reached our initial target area hence short-term caution is warranted. On the weekly time frame 
its now looking bullish with stops under $US1300/oz.
 
Copper remains in a negative downtrend on a longer term basis targeting prices over 20% lower.
 
Crude Oil still looks set to continue the recent strength towards the $US60/barrel resistance area after what currently looks like a completed pullback, a break back under $US40/barrel would question this interpretation.
 
Iron Ore achieved our +$US70/tonne target, technically we are now neutral.
 
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 4/09/2016. 9:00AM.
 
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