Market Matters Report / Market Matters Weekend Report Saturday 16 January 2016

By Market Matters 16 January 16

Market Matters Weekend Report Saturday 16 January 2016

Market Matters Weekend Report Saturday 16 January 2016

Bear Markets are being registered everywhere!

Overview

  • We are only 10 trading days into 2016 and the ASX200 has already fallen 403 points (7.6%) as panic around China and world growth escalates.
  • After Fridays 390 point fall on the Dow Jones Index the local market is set to test the 4800 level on Monday putting it into a Bear Market territory joining some of the US indices, China and amazingly German stocks only 9 months after making an all-time high!
  • For most commentators a Bear Market is usually defined as a fall over 20% for at least 2 months;  a correction is 10%.
  • Since the great depression we have endured 8 bear markets which historically lasted an average of 20 months with an average loss of 38%
  • Currently the Russell 3000 Index (98% of US stocks) has fallen for only 8 months recording a fall of 14.6% - no bear market on the broad index unlike the Russell 2000 Index (small cap stocks) which is down 24%  - see charts 9 & 12.
  • It can be hard to hold ones nerve as an investor when bad news is everywhere BUT in last weekends report we targetted a further 4% correction for US equities and even after Fridays plunge the Dow only closed down 2.2% for the week.
  • Hence Market Matters preferred scenario remains that the US indices will bottom in coming weeks prior to one final push up to all-time highs and then a real Bear Market will follow.
  • Accelerated selling on Friday is no major surprise ahead of the US Martin Luther King public holiday on Monday - who knows what China may produce over 24 hours, hence any "weak longs" in the US can be assumed to have sold.
  • Importantly now turning our attention to the local ASX200 which clearly is in a far more negative overall structure to the US indices, at present currently 28.6% below its all time high compared to only 12.9% for the Dow Jones.
  • Our preferred scenario is that short term the ASX200 holds the 4750-4800 region and bounces back towards 5350 if our view is correct for American stocks.
  • However it should be remembered that our view remains that after making fresh highs ,the US market will then enter a bear market falling 30+% which is likely to take the ASX200 well under 4500.
  • Hence any buying we engage in will have only a 3- 6 month time horizon and selling opportunities will be greeted with enthusiasm.
  • Also our short term positive view from the levels we are rapidly approaching will have close stops in case we're wrong and the markets is already in a Bear Market and the final high we have been targetting simply failed.

Turning to the Markets

  • Last week Market Matters purchased half the position sizes in RIO and Fortescue, short term these positions are likely to be marginally behind but we remain positive resources at current levels for a decent bounce minimum.
  • It was very encouraging on Friday night when markets were collapsing on world growth fear to see Iron Ore rally +2.2%
  • Our nemisis last year, BHP : looks to be searching for a low ~$14 and we are targetting a bounce towards $18 from these levels +20% - see chart 24.
  • Powerhouse Goldman Sachs has just stated that they expect Oil to enter a bull market in 2016 i.e. a rally over 20%  - a view we agree with at Market Matters.
  • Less than 20% of global oil reserves are financially viable under $US30/barrell implying strongly that a low is close / not too far away.
  • Market Matters remains keen on gold stocks going forward and is simply waiting for an ideal entry opportunity.

Chart of the week

  • Regis Resources (RRL) $2.31 - RRL has enjoyed an excellent rally since mid 2015. We are keen buyers around $2 : an entry target that looks possible from the gold ETF chart - see charts 29 & 31b.

Summary:

We remain cautiously positive equities with our targets for this retracement for US equities very close at hand. We are simply far more wary than usual with our forecast at present because we are looking for a major retracement from US indices in the medium term. We are especially keen on the resource sector at current levels from a risk/reward basis looking for a strong bounce minimum.

*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 continued weakness in the Dow Jones.

                                    Potential investing opportunities for the coming week.

                                    Remain patient at present but we still like Telstra around $5.

                                    Potential trading for the coming week.

                                    Short term we like BHP,RIO and FMG for decent bounces minimum and could buy any decent weakness on Monday.

Portfolio / Trade Holdings

The Market Matters portfolio had an average week matching the ASX200 and being basically unchanged after buying RIO and FMG after their large declines - the ASX200 was basically unchanged down 0.1%.
1. Ansell (ANN) -3.9% - medium term investment.

2. ANZ Bank (ANZ) +0.4% - medium term investment.

3. Bendigo Bank (BEN) -1.2% - medium term investment.

4. Commonwealth Bank (CBA) +1.4% - long term investment.

5. Healthscope (HSO) -1% - medium term investment.

6. Seek (SEK) +0.8% - medium term investment.

7. Suncorp (SUN) +1.7% - medium term investment.

8. Oil Search (OSH) -0.2% - short / medium term trade.

9. Mirvac (MGR) -0.5% - short / medium term investment.

10. Fortescue (FMG) -7.2% - short / medium term investment

11. Rio Tinto (RIO) -3.6% - short / medium term investment

· Cash position now ~10%.


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 have experienced a technical back flip this week and look to be following the Russell 2000 below August 2015 lows:

  •  The Dow is the only index that now looks 50-50 whether August low will hold as it achieved its wave symmetry target last year.
  • The NASDAQ's wave symmetry target is ~3500 i.e. a massive 18% lower.
  • The S&P500's technical retracement target is ~1845 i.e. 4% lower.
  •  The Russell 3000's technical retracement target is ~1085-1090 i.e. 3.5-4% lower.
  • The Russell 2000's technical retracement target is ~1010 i.e. 3.5% lower.
  • The NYSE's technical retracement target is ~8925 i.e. 6% lower.


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 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 have struggled over the last 5 weeks, since the ECB disappointment and now China is adding to the selling pressure.

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

Asian indices have been extremely volatile since the start of 2016 in sympathy with the recent uncertainty in Chinese stock market and weakness / devaluation of the Yuan.

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

Stocks with sustainable yield, offshore earnings and healthcare in general have been standout sectors over recent times but some resource stocks are now looking interesting.

We're no longer bearish the resources sector from a risk / reward trading perspective and in fact some low risk buying opportunities may actually arise in 2016.

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 – Newcrest Mining (NCM) Monthly Chart


Chart 29 – Regis Resources (RRL) Weekly Chart


Chart 30 – 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 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) Weekly 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 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



Commodities
Gold has recently rallied well from multi year lows.
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 $US30/barrel area recently but has not managed to rally.
Iron Ore remains close to multi-year lows and like Crude Oil has so far 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


This report contains factual information and does not constitute financial advice. The information is not intended to imply any recommendation or opinion about any financial product.

 

Have a great week from Richard and the Market Matters team 

 

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