Market Matters Report / Market Matters Weekend Report 7th October 2015

By Market Matters 08 November 15

Market Matters Weekend Report 7th October 2015

Market Matters Weekend Report 7th October 2015

The Melbourne Cup winner was 100-1 !!!!

Welcome to the weekend and apologies for the late report! Some bad traffic on my way back from Berry!!

Overview

Last Tuesday the Melbourne Cup was won by Prince of Penzance an incredible 100-1 fairy tale for many beautiful reasons and the town of Ballarat. While the story is an emotional one when compared to the stock market the message is easy........Never underestimate what the market can do!

Last week was disappointing for the ASX200 with the market falling 0.5% to be 15% below the 2015 highs compared to the US S&P500 which is only 1.7% below the years high. Unfortunately, this local under performance is not surprising when we compare both respective economies and individual companies within the respective indexes. To be fair the local index has had to contend with both ANZ and NAB going ex-dividend during the week, and with Macquarie and Westpac going ex-dividend this coming week.

On Friday night the US unemployment numbers were simply excellent significantly increasing the odds of a rate rise in the US in December. Despite this, the market held well, clearly having one eye on higher rates and one on an improving economy.

Turning to the Markets

Market Matters view remains bullish the US stock market over coming months into a potentially significant top in 2016. Hopefully the ASX200 can continue with recent seasonal strength into a high in January.

The $US remains very strong reflecting the improving economy and likely increasing interest rates with the $US Index looking set to make fresh 2015 highs in coming months - see chart 59b.

Market Matters can see this blow off top in the $US coinciding with both a low in the $A, a low in gold and a top in US equities - see charts 59a & 8-13.

If this analysis is correct any further strength in stocks that benefit from $US earnings like Amcor, Ramsay Healthcare, QBE, Resmed and Cochlear may be profit taking opportunities worth considering.

In a week when the index moved very little three scenarios involving major Australian companies caught our eye.
1. Telstra (TLS) remains an under performer for the week, falling 1.7% for the week, while other stocks in the sector continue to perform. Telstra's 5.74% fully franked dividend has clearly lost its lustre as the market perceives the potential impact to profit of the creation of significant new competitors through recent merger activity. The lack of growth from TLS and costs required to make future steps count against this major Telco. Telstra may however be an outperformer after we reach the expected 2016 market highs.

2. BHP Billiton (BHP) had an awful end to the week falling 2.5% on Friday as both Iron and crude oil prices drift plus there were some very unfortunate fatalities at one of its joint venture iron ore projects with Vale in Brazil. On Friday night both stocks were hammered. Vale fell 5.7% to be only 2.9% above the year’s lows and BHP closed on the US ADR market at $21.83, down 3.8% from Fridays close - see charts 24 & 28. BHP is likely to be down well over 30% for the year on Monday's open and a false spike under $21.61 would be very bullish technically - a very similar chart pattern to that exhibited by Santos (STO) and Fortescue (FMG) earlier in the year - see charts 25b and 27.

3. The gold price continues to fall and looks likely to make fresh lows for 2015 in coming weeks. Newcrest Mining (NCM) remains very bearish technically but any significant weakness to the local sector over coming weeks / months may be an excellent buying opportunity, especially to the largely unhedged producers - see chart 31b.

Chart of the week

BHP Billiton $22.70 - Technically a false break under $21.61 would be bullish targeting a ~20% countertrend rally - see chart 24.

Summary:

Market-wise the US is unfolding exactly as expected and the ASX 200 is now entering the strongest week of the season for the unfolding of the expected Christmas rally.

During the coming week we will be looking for an opportunity to switch from Macquarie to BHP looking for at least a 20% return. Also, for those investors with extra ammo available we would be looking to increase exposure to the banks now that the dividend season is nearly over.

 * Watch closely for Market Matters alerts via SMS and email.


What Matters this week

The ASX200 looks likely to open up unchanged on Monday after a relatively quiet night overseas.

 

            Potential Investing opportunities for the coming week

    • Market Matters advocates being fully invested with 7-8% cash for specific opportunities.

             Potential Trading for the coming week

    • Short term we still believe the best trading action is to be a buyer of the ASX200 around 5175.
    • The main trading stock that looks good at present is BHP ~$21-21.50.

 

Portfolio / Trade Holdings
Market Matters portfolio had an average week just failing to match the weak ASX200 - the ASX200 fell 0.5%.

1. Ansell (ANN) -1.9% - medium term investment.

2. ANZ Bank (ANZ) -4.6% - medium term investment - also went ex-dividend.

3. Bendigo Bank (BEN) +0.6% - medium term investment.

4. Bank of Queensland (BOQ) +0.5% - medium term investment.

5. Commonwealth Bank (CBA) -0.2% - long term investment.

6. Seek (SEK) +5.1% - medium term investment.

7. Suncorp (SUN) -0.8% - medium term investment.

8. Macquarie (MQG) -3.8%- medium term investment.

9. Oil Search (OSH) +0.8% - short / medium term trade.

 

  • Cash for future purchases ~7.5%.


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 German 10-year Interest Rate Quarterly Chart


American Equities

The American indices experienced our anticipated correction, especially very sharply in August similar to 2011. The S&P500 rallied very quickly and is only 1.7% below its all time high!

  • The Dow exceeded predicted target and now looks very bullish targeting the 19,000 area.
  • The NASDAQ looks very bullish and set for futher fresh 2015 highs.
  • The more followed (by market observers and participants) S&P500 fell 2% short of our technical target during its pullback but has also now also started rallying strongly.


Chart 8 – Dow Jones Index Monthly Chart


Chart 9 – Dow Jones Index Weekly Chart


Chart 10a – US S&P500 Index Monthly Chart


Chart 10b – US S&P500 Index Weekly 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
Most European Indices appear to have completed a decent correction with the clearest leads recently coming from the UK's FTSE, German DAX and Spanish IBEX.
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


Chart 19 – German DAX Index Weekly Chart



Asian & Emerging Markets Indices
Asian indices have been extremely volatile over recent months in sympathy with the uncertainty in Chinese stock market and weakness / devaluation of the Yuan. Last Fridays interest rate cut in China failed to excite the equities this week.
Chart 20a – Hang Seng Weekly Chart


Chart 20b – China Shanghai Composite Index Monthly Chart


Chart 21 – Emerging Markets Index Monthly Chart


Chart 22 – Japanese Nikkei 225 Index Monthly Chart



Australian Stocks

Quality stocks with sustainable yield have been standouts over recent times but some industrial and finally resource stock are now looking better. We remain positive the “yield play” after its +20% correction and looking to invest in growth / overseas earning stocks BUT not resources. However, we're no longer bearish the resources sector from a risk / reward trading perspective and in fact some low risk buying opportunities are close at hand.

Chart 23 – BHP Billiton (US) Monthly Chart


Chart 24 – BHP Billiton (BHP) Daily Chart


Chart 25a – Woodside Petroleum (WPL) Weekly Chart


Chart 25b – Santos (STO) 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 – Vale (US) Weekly Chart


Chart 29 – Newcrest Mining (NCM) Monthly Chart


Chart 30a – Regis Resources (RRL) Weekly Chart


Chart 30b – Northern Star Resources (NST) Weekly Chart


Chart 31 – Barrick Gold Corp. (US) Monthly Chart


Chart 31b – Market Vectors Gold ETF Daily Chart


Chart 32a – Commonwealth Bank (CBA) Quarterly Chart


Chart 32b – Commonwealth Bank (CBA) Monthly Chart


Chart 33a – ANZ Bank (ANZ) Monthly Chart

Chart 33b – ANZ Bank (ANZ) Daily 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) Weekly Chart


Chart 37b – Bendigo & Adelaide Bank (BEN) Monthly Chart


Chart 38 – AMP Ltd (AMP) 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 45 – Seek Ltd (SEK) Monthly Chart


Chart 46 – Telstra Corp. (TLS) Monthly Chart


Chart 47– M2 Group Ltd (MTU) Monthly Chart


Chart 48a – Vocus Communications (VOC) Weekly Chart


Chart 48b – 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– Resmed (RMD) Weekly Chart


Chart 53 - Ansell (ANN) Monthly Chart


Chart 54 – Amcor Ltd (AMC) Monthly


Chart 55 – Crown Resorts (CWN) Monthly


Chart 56– Myer Holdings (MYR) Weekly


Chart 57– JB Hifi (JBH) Monthly


Chart 58– Harvey Norman (HVN) Monthly


Chart 59a– Australian Dollar (AUD) Monthly Chart
The $A continues to decline with an ultimate technical target now well under 70c BUT a bounce similar to the one in April targets ~75c.


Chart 59b– The $US Index Monthly Chart



Commodities

Gold is weak at present as it has rejected strongly the $US1200/oz resistance.

Copper remains very negative 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.

As anticipated, Crude Oil made fresh 2015 lows in August causing us to watch carefully for buying opportunities within the sector. Technically short term bullish from current levels.

Iron Ore remains mildly positive for a countertrend bounce towards $US65-70/tonne.

Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart


Chart 63 – Iron Ore Monthly Chart


Please note this is our personal TECHNICAL opinion of markets and "General Advice" taking no account of individual’s circumstances.
Have a great week,  from Richard and the Market Matters Team


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