Market Matters Report / Market Matters Weekend Report 5th June 2016

By Market Matters 05 June 16

Market Matters Weekend Report 5th June 2016

Market Matters Weekend Report 5th June 2016

 

Overview
 
After an excellent 7 week, +534 point / 10.9% rally, the ASX200 not surprisingly had a correction last week falling a modest 1.6%. Locally the losses were led by the banks which fell 4% assisted by energy which fell 2.2% and retail which retreated 2.6%. We were noticeably a relatively poor performer on the world stage, with the US market hitting a 7-month high on Thursday. This relative weakness is no surprise as our financial year (EOFY) ends in 4 weeks and tax loss selling appears to be picking up momentum. As we have discussed a number of times recently be prepared for some unusual volatility from individual stocks over the next few 4 weeks. The short term direction of the local market is tricky at present especially due to the EOFY but we maintain a net positive bias and will be looking for any bargains created by tax loss selling.
 
 
ASX200 Weekly Chart
 
 
Friday nights US employment data was the weakest in 6 years and importantly significantly worse than expected - the US economy added 38,000 new jobs compared to the anticipated 160,000! Some very insightful market movements emerged from this disappointing insight into the strength of the US economy. As would be expected the US dollar was smacked falling 1.6%, gold surged 2.5% and US short term rates dropped sharply as the market lost confidence in the US economy and hence the Feds ability to materially raise interest rates in 2016. Interestingly all of these markets basically closed on their respective session extremes as people started to interpret this data as potentially economically "goal post moving" and not just a one off blip. Janet Yellen (Chair of the Federal Reserve) is making a speech early next week and it will be very interesting to hear her comments after this data. We remain open minded to whether the US may be about to slip back towards a recession as one data print does not create a trend.
 
 
The $US Index 240mins Chart 
 

US 2 year Generic 2 year yield Daily Chart 
 

One market that did shrug off the poor employment statistics was the share market, the Dow initially fell ~150 points but then rallied for the remainder of the day to only close down 31 points (0.18%). This internal strength demonstrated from US stocks coincides with our positive short term outlook - simply a market that can ignore bad news is a strong market. We continue to be short term bullish targeting fresh all time highs from US stocks in 2016.
 
Medium term we still believe the mature 7-year bull market will correct at least 20-30% sometime in the next 1-2 years, exciting times approach. There are two forces at play that we are watching carefully to try and identify the likely top for US stocks. Firstly the largest buyer of US stocks during this bull market is the companies themselves in the form of buy backs as earnings growth falls they have enjoyed record low interest rates, but company directors historically buy and sell stocks at the wrong times = an ominous sign. Secondly the professional investors are sitting on very large cash levels, a break to fresh highs will force some of these institutions to chase performance / stocks, hence in our opinion putting the market in a more vulnerable position for a correction to then follow.
 
S&P500 Monthly Chart 
 
 
Gold surged 2.5% on Friday night which is likely to ignite the local gold sector tomorrow morning. The gold miners ETF looks set to make fresh highs for 2016 early next week but we think this is liklely to be an excellent short term selling opportunity - we will be looking carefully at taking a potential 8-10% profit on our RRL position on Monday.

Watch closely for Market Matters alerts via SMS and email.
 
Gold Monthly Chart 
 
Gold ETF Daily Chart 
 
Standout technical chart of the week 
 
 
Late last year SPO shares plunged over 40% after a poor update but we note the business is going ok if we out recent acquisitions to one side – sound familiar! Technically SPO is  a buy with stops under $1.08 which represents good risk / reward. However, the stock is down 47% for the year and a prime candidate for tax loss selling hence we are watching carefully for a potential improved entry level in June or a 2 stage entry plan.
 
Summary
 
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 but the next few weeks will be tricky as tax loss trading picks up momentum.
 
What Matters this week
 
The ASX200's should open more or less unchanged on Monday with resource stocks likely to open firm and banks slightly weaker.

Potential Investing opportunities for the coming week(s)

Exciting opportunities remain thin on the ground at present which is not surprising with the ASX200 testing 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.

As always, alerts via email & SMS will be sent if we take any action on our portfolio.

Potential Trading opportunities for the coming week

From a trading perspective markets are likely to remain yet again choppy next week in the local market with tax influenced trading. US stocks look poised to push to fresh 2016 highs but we are 50-50 whether it will be "the" move that surges to fresh all time highs. It feels like a good week to be an observer rather than player. Often, patience more than activity can yield best results!
 
 
 
Portfolio / Trade Holdings

The Market Matters Portfolio:

 
https://www.marketmatters.com.au/blog/post/market-matters-stock-portfolio-monday-30th-may-2016/
 
Our cash position sits at a healthy ~31% after recently buying Regis Resources (RRL) BUT there is a distinct possibility we will take nice profits on this position early next 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 remain very tricky which is no surprise with the BREXIT vote looming on Thursday June 23rd..

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 Japan the Asian indices had a solid week and all look poised for further 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


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 Hi-Fi (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 short term caution is warranted - the anticipated pullback towards the $US1,200 region has materialised.
 
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 5/06/2016. 11:00AM.
 
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