Market Matters Report / Market Matters Weekend Report - Saturday 18th July 2015

By Market Matters 18 July 15

Market Matters Weekend Report - Saturday 18th July 2015

Market Matters Weekend Report - Saturday 18th July 2015

Afternoon All

Last week saw strong gains from world equity markets as concerns around both Greece and China dissipated, with confidence returning to most market sectors. Buying any ~10% sell off in the ASX200 since the GFC in 2007/8 has proved to be a very simple and profitable method of investing. However, we still believe that the US market is close to a 15% correction, likely after fresh 2015 highs in the Dow and S&P500, which this time will create some pain for buyers of a 10% weakness - remember our beloved and apparently safe banks managed to fall 18% earlier in the year. Interestingly, even after the recent strength in equities, Westpac (WBC) remains 13.7% below its 2015 high. As mentioned in previous reports, we believe a number of markets are close to points of inflexion and it is at these significant moments for markets that we consider different pieces of the jigsaw puzzle prior to taking aggressive / contrarian positions - basically we are looking for triggers to initiate positions:

1. In last Wednesday's morning report we targeted fresh 2015 highs from Apple, Google and Microsoft - Apple is 4% short, Google has rallied 11% to exceed our target and Microsoft remains 7.4% short = 1 of 3 only satisfied.

2. The S&P500 and Dow are only 1-2% from ideal fresh 2015 high target area.

3. The EuroStoxx is 5% from an ideal 2015 high and the Nikkei 225 is 2%.

4. The REITs are ~7% from our ideal target and the Banking Index ~3%.

5. Amcor (AMC) the “go to” local $US earning stock is ~4% from our ideal 2015 high.

The simple conclusion from the above 5 points is that markets should rally further prior to ideal levels to sell some stocks, and / or initiate some trading short positions. Last week we stated that "We feel the market is starting to represent fair value around the 5400 level", we have worn our buyer’s hat in recent weeks picking up, as investments, ANN, CGF, CBA and SEK into weakness. After the recent 5% rally in the ASX200 from the 5400 region we now have our seller’s hat back on - we currently anticipate selling / lightening our positions in BOQ and MGR into further strength.

There is a common saying "Every dog has its day" and we have definitely adopted this phrase with our current 3 aggressive trades. We remain confident that at least 2 of these opportunities will prove successful but will not become too attached if the reason for the trade disappears:

  • Long Fortescue (FMG) via options, long Myer (MYR) and long Regis Resources (RRL).

Fridays 26% surge in RRL after some excellent corporate news clearly illustrates the potential reaction when markets have got it wrong. Our position in RRL is up already just under 10% but we will be happy buyers into any weakness created by the current sell-off in Gold with a target for RRL around $2.

Two market sectors that have been disappointing performers in 2015 are gold and oil. At Market Matters we have very different views on these two sectors that we feel are NOT aligned with the markets at present.

1. Gold - we believe the current weakness testing the lows since 2010 will not follow through and is providing good buying opportunities in the gold sector e.g. NST & RRL in Friday’s Market Matters Morning Report.

2. Oil - we still believe that oil will break below its panic $US42/barrel lows in March taking the likes of Santos (STO) with it to ~$6.50.

Our views at a glance:

1. US equities will correct ~15% in the relatively near future ideally after making fresh 2015 highs.

2. The gold sector is providing some excellent countertrend opportunities.

3. Commonwealth Bank (CBA) will trade between $75 and $95 over coming 12-18 months – very useful for active investors and option sellers / traders.

Any subscribers not familiar with codes or companies can perform quick checks on the ASX website: http://www.asx.com.au/ - See charts of all below.

Summary:

1. We will remain patient on selling at present but we now wear a different hat.

2. We continue to have no interest investing in the resources sector but excellent trading opportunities are now appearing.

* Watch out for alerts.

What Matters this week

The ASX200 looks likely to open unchanged on Monday.

Potential Investing opportunities for the coming week

  •  We are looking to reduce equity exposure into further strength.

Potential Trading for the coming week

  • For aggressive traders / investors we are long FMG / MYR and Regis Resources (RRL).
  • We are looking for further buying opportunities in the gold sector.

Portfolio / Trade Holdings

Our portfolio enjoyed a very solid week of performance, matching the overall market last week, the ASX200 rallied 3.2%.

1. Ansell (ANN) +3.0% - medium term investment.

2. Bank of Queensland (BOQ) +2.5% - medium term investment.

3. Challenger (CGF) +4.4% - medium term investment.

4. Commonwealth Bank (CBA) +2.6% - long term Investment.

5. Mirvac (MGR) +2.7% - medium term investment.

6. Seek (SEK) +1.0% - medium term investment.

7. Vocus (VOC) +5.9% Medium term investment.

· Fortescue (FMG) October 1.75 Calls - Trade.

· Myer (MYR) - Trade.

· Regis Resources (RRL) - Trade.

Cash for future purchases, ~30%.

Australian ASX200

I continue to look to spread my portfolio into more growth and offshore earning stocks going forward but, importantly, with patience.

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 REIT Index Monthly Chart

Chart 5b  ASX200 Banking Index Monthly Chart

Chart 5c  ASX200 Banking Index 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 continue to show signs of a topping pattern for 2015 but fresh highs are likely first.

Chart 8 – Dow Jones Index Monthly Chart

 Chart 9 – Dow Jones Index Daily Chart

Chart 10 – US S&P500 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 feel to be in the middle / close to a decent correction with clearest leads coming from the UK FTSE 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 Daily Chart

 Asian Indices

Asian indices have been extremely volatile over recent weeks on the back of a plunging Chinese market, we believe this represents a good long term, albeit aggressive, buying opportunity. The Nikkei Index looks set for one final 2015 top prior to good selling opportunities.

Chart 20 – Hang Seng Weekly Chart

Chart 21 – China Shanghai Composite Index Monthly Chart

Chart 22 – Japanese Nikkei 225 Index Monthly Chart

 Australian Stocks

Quality stocks with sustainable yield have been standouts but some industrial stocks are now looking better. I no longer am a net seller of the “yield play” after its 15-20% correction and looking to invest in growth / yield stocks BUT not resources. However, I am no longer bearish the resources sector from a risk / reward perspective - some trading opportunities are arising.

Chart 23 – BHP Billiton (US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Weekly Chart

Chart 25 – Woodside Petroleum (WPL) Weekly Chart

Chart 25b – Santos (STO) Weekly Chart

Chart 26 – RIO Tinto (RIO) Weekly Chart

Chart 27 – Fortescue Metals (FMG) Weekly Chart

Chart 28 – Vale (US) Weekly Chart

Chart 29 – Newcrest Mining (NCM) Monthly Chart

Chart 30 – Regis Resources (RRL) Weekly Chart