Market Matters Report / Market Matters Weekend Report Saturday 20th February 2016

By Market Matters 20 February 16

Market Matters Weekend Report Saturday 20th February 2016

Market Matters Weekend Report Saturday 20th February 2016

Market Matters Weekend Report

Hi Everyone and welcome to the weekend report

Overview

As we both predicted and obviously hoped, last week world equity markets rallied strongly with the ASX200 +3.9% and S&P500 +2.8%. The local market outperformed our American friends courtesy of the resources space i.e. Energy Sector +8.3% and the Materials Sector +7.7%.

Later in this report we will cover both our medium and long term thinking around commodities but first we want to look at the bigger picture for equities as a whole.

Market Matters has been forecasting that the S&P500 will make fresh all-time highs in 2016; technically, we still like this view BUT remain conscious of what we believe comes next. As regular readers know, our current view of the market is that after reaching fresh all-time highs the S&P500 will correct ~40% similar to the arrows on the chart below. Yes, quite a dramatic move but if history repeats we might expect the market to then trade basically sideways for around 12 years.


It's never easy to combine fundamentals with a technical view but a few things are catching our eye:

1. Worldwide, professional fund managers are holding almost record levels of cash; an interesting fact because markets usually fall hard when investors are long / highly leveraged NOT sitting in cash.

2. If equities do continue to rally from current levels, these fund managers, whose job it is to beat the S&P Index, will be forced to buy even if they believe stocks are expensive i.e. FOMO "Fear of missing out".

3. Our current fundamental thought is more QE is coming from Central Banks which will push asset prices higher, including stocks.

4. However, after this, Central Banks may be totally out of ammunition which will lead to a loss of faith that they are in control; a view that has been around recently leading to the recent plunge in stocks.

5. Basically, Market Matters believes the recent correction in equities is a warning of what will follow later in the year and probably through 2017.

Turning to the Markets

Market Matters is currently "short term” invested in BHP, FMG and RIO which is constituting ~13% of our portfolio. At present, these positions are looking excellent being up well over 10% (on average), plus we have already locked in some profits.

Short term we believe that the resources space will continue to recover in line with the very strongly positioned Emerging Markets Index shown below. However, we still believe that this a countertrend rally and we do not want to own resource stocks long term; hence, we will continue to lock in profits into strength.

Market Matters remains very bearish copper where longer term we are targeting sub the 150 area minimum i.e. a further ~30% weakness.

Copper is often regarded as a leading economic and, hence, equity indicator with our negative view on copper coinciding with our overall thoughts around stocks.

For subscribers that like to follow charts, compare the long term charts of Newcrest (NCM) and BHP in $US with copper, they are almost identical which is not a good sign for copper - charts 23 & 28.





Standout technical chart of the week - Amcor

Amcor (AMC) had an excellent result last week leading to a 13.7% rally. Technically, AMC looks very bullish targeting over $15.

If / when this is achieved, it will be a warning to Market Matters that a top in equities is fast approaching.



Summary

Stay long in the short term but stick to the plan and sell into strength if it materializes.

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

What Matters this week

The ASX200 looks likely to open up around 10 points on Monday after a quiet Friday night on Wall Street.

Potential Investing opportunities for the coming week

  • After last week's rally the risk reward is not exciting for investors and we are now have a neutral stance although we are basically fully invested.


Potential Trading opportunities for the coming week

  • Stocks had a strong rally last week and traders should now be looking for a correction seeking low risk buying opportunities.
  • Good risk / reward for the Index is currently to buy around 4915 with stops initially under 4820.
  • In stocks, technically we still see decent upside in resources, AMC, WFD and WES but the risk reward is not exciting.


Portfolio / Trade Holdings

The Market Matters portfolio had an excellent week with our recent exposure to the resources sector soaring (FMG +23, RIO 5.3% and BHP +10%). Bendigo Bank being is the only disappointment, falling 4.8% after reporting. -The ASX200 rallied 3.9% for the week.

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-tuesday-16-february-2016

  • Cash position now only ~2%.

 

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 2-year Interest Rate Monthly Chart


American Equities

The American indices now look bullish actually targeting fresh all time highs in 2016, a break under this month's lows is required to turn this view negative.

Chart 8 – Dow Jones Index Monthly Chart


Chart 9 – Russell 3000 Weekly Chart


Chart 10a – 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

Most European Indices have struggled over recent months, since the ECB disappointment and they continue to underperform other major indices.

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 are tricky to forecast after they have reopened in the year of the monkey. However the Emerging Markets Index looks bullish targeting a 20% rally from current levels.

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 are now looking interesting for a further 5-10% rally minimum which ties in with the Emerging Markets Index. Banks continue to underperform on worldwide economic worries.

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 – 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) Monthly 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 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 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 but a bounce to ~74c would not surprise.


Chart 59b– The $US Index Monthly Chart



Commodities

Gold has recently rallied very well from multi year lows but may need further poor news from equities to kick much higher.

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 but it has now rallied over 10% from its recent lows.

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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