Market Matters Report / Market Matters Weekend Report Saturday 12 December 2015

By Market Matters 12 December 15

Market Matters Weekend Report Saturday 12 December 2015

Market Matters Weekend Report Saturday 12 December 2015

The Bears clearly won the battle last week!

What a difference a week makes! Last Saturday’s report was written with an optimistic spring after the Dow had rallied 370 points following a strong employment report; this morning the Dow is down 310 points as markets worry about the Feds meeting next week. The markets are currently pricing in over a 70% chance the US Fed will raise rates next week, the opinion is more divided on whether it will be 0.25% or 0.5%. Market Matters believes the rise will be 0.25% and it will be nice to finally get this out of the way.

A rising interest rate environment would normally be indicative of a strong / rebounding economy and positive for stocks; conversely, interest rates at historically low levels as they currently are would normally be weak for stocks… but then since the GFC much of the global equity and asset price strength has been in the search of yield rather than value so as yield differentials are about to adjust, be it in only a small way, so asset prices also shift from yield to value which is exactly what we have witnessed in banking stocks over the last few months.

To make things more interesting / volatile there is an enormous $1 trillion option expiry next Friday 18th, straight after the potential rate rise in the US.

Turning to the Markets

Last week the ASX200 ended down 2.4% despite a strong lead from the US to kick-off the week and before last night’s price action on the Dow. The Dow ended closing down 3.3% for the week. What remains very unsettling for local investors is that the ASX200 will open on Monday very close to the recent late September lows while the Dow is still an impressive 12.3% above its panic August low.

Market Matters is very frustrated and disappointed to have watched our paper profits slowly evaporate over recent weeks in the expectation of a solid rally into the Christmas / new year period. Seasonally, December usually rallies from this period into the end of the months so while we remain with a clear Selling Hat on we will not be panicking with our positions with the market under 5000 next week

Technically the Dow has not changed at all and looks well positioned to head to new highs in coming weeks / months. However, the local correlation with US indices has not been anywhere near aligned over recent times.

BHP and its fellow resource stocks are the main reason for this simply dismal performance with many of them crashing to multi-year lows. In some ways it reminds me of the West Indies cricket team from its awesome, almost unbeatable strength of years past to where it is today!! BHP is clearly no longer the "Big Australian" having fallen from being 18.5% Index weighting to only 4.4%; hence, continued weakness will actually start to have a lower impact on the ASX200.

The current momentum for BHP is weak with stock closing this morning on the ADR's ~$16.56, back to June 2005 levels, Market Matters believes the resources space is just too hard as painfully illustrated to us when we attempted an aggressive foray into BHP recently. A poor call for which we say sorry yet again!

In times of concern investors should generally keep things simple, the P/E of the market is back at 14.4x close to the long term average of the past decade. The largest stock locally, CBA, was yielding 5.3% fully franked basis Friday's close; so any significant weakness early next week may present price /yield levels that are too hard for investors to resist as they look to redeploy funds received from bank dividends being paid next week.

Some other points for thought:

  • With interest rates at 2% the market is historically in buy territory; the wild card is does the RBA believe the Australian economy is as strong as employment data implies? If so, rates may actually rise.
  • We should all remember at times of discomfort that we've all stared down the barrel before and come through the other side, this hopefully will be no different.
  • On Monday morning the market will open down around 80 points.
  • ANZ, NAB and Westpac dividends are being paid from next week.

Chart of the week

Emerging Markets ETF – the ASX200 appears exceptionally closely correlated to this market. Currently the emerging markets are calling for fresh lows around 5% lower a lot of which is likely to be witnessed in a bit of a rout following last night’s fall in the US. Short term we want to see a false break to new 2015 lows before we can get bullish….see chart 21a.


We are not panicking but are disappointed in the lack of strength in the local market. However, we remain confident that we will be able to exit our positions in coming weeks/months at more favourable prices.

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

What Matters this week

The ASX200 looks likely to open down around 80 points on Monday after Fridays 310-point rout in the Dow.


                               Potential Investing opportunities for the coming week

          • Market Matters currently likes its portfolio mix but would not be adding to it at the moment


                              Potential Trading for the coming week

          •  For the option traders selling December calls to buy January calls, ties in with our timing view of a late December rally albeit from lower levels than we anticipated; a December / January calendar spread.


Portfolio / Trade Holdings

The Market Matters portfolio had a bad week due to OilSearch's sharp decline after Woodside pulled its takeover bid - the ASX200 fell 2.4%.

1. Ansell (ANN) -0.7% - medium term investment.

2. ANZ Bank (ANZ) -3.3% - medium term investment.

3. Bendigo Bank (BEN) -1.5% - medium term investment.

4. Commonwealth Bank (CBA) -1.6% - long term investment.

5. Healthscope (HSO) -2% - medium term investment.

6. Seek (SEK) +0.9% - medium term investment.

7. Suncorp (SUN) -2.7% - medium term investment.

8. Oil Search (OSH) -22% - short / medium term trade.

9. Mirvac (MGR) +3.4% - short / medium term investment.

Cash position under ~7%.

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

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

American Equities

The American indices experienced our anticipated correction around August similar to 2011. The S&P500 has since rallied very impulsively almost making fresh all time highs, the market looks very strong at present and this remains a seasonally bullish time for equities.

  •  The Dow exceeded predicted target on pullback and now remains bullish targeting the 19,000 area.
  • The NASDAQ now looks strong and a test of 5000 is a possibility.
  • The more observed (by market observers and participants) S&P500 fell 2% short of the technical target during its pullback but is very quickly only ~2 % below all time highs.
  • The NYSE and Russell 2000 indices are still looking average i.e. not like the big NASDAQ blue-chips like Apple and Google.

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. The European Indices were outperforming the US recently until ECB stimulus disappointed the markets, but overall the they remain bullish.

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.

Chart 20a – Hang Seng Weekly Chart

Chart 20b – China Shanghai Composite Index Weekly Chart

Chart 21a – Emerging Markets MSCI ETF Weekly 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 interesting.

We remain cautiously positive the “yield play” after its +20% correction.

We're no longer bearish the resources sector from a risk / reward trading perspective and in fact some low risk buying opportunities maybe arising.

Chart 23 – BHP Billiton (US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Daily Chart

Chart 25a – Woodside Petroleum (WPL) Monthly 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– Healthscope (HSO) 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 major technical support down ~60c.

Chart 59b– The $US Index Monthly Chart


Gold recovered well last week breaking the short term downtrend.

Copper remains in a 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 held the $US40/barrel area recently but has not managed to rally.

Iron Ore remains around multi-year lows and like Crude Oil has failed to achieve any meaningful bounce.

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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