Market Matters Report / Market Matters Weekend Report Saturday 23 January 2016

By Market Matters 23 January 16

Market Matters Weekend Report Saturday 23 January 2016

Market Matters Weekend Report Saturday 23 January 2016

Market Matters’ Weekend Report

Welcome to what will undoubtedly be a 4-day long weekend for many!

Overview

Anybody  who watched the wild swings in stock markets last week would probably be surprised to have seen the ASX200 actually closed up 0.5% for the week!

Markets are currently highly correlated with the wild swings in both Chinese stocks and the oil price - crude oil was up a whapping 8% on Friday night! 

Market Matters remains cautiously bullish from current levels with positive signals being generated by US stocks, UK FTSE and the emerging markets. Nevertheless, the panic that has hit investors in 2016 has the feel of a classic "panic low" but we are cautious this time due to our medium-term correction outlook for equities.

The ASX200 has an excellent correlation with the UK FTSE due to both resource stocks exposure;  the FTSE is targetting a rally of 8 - 10%  - (see chart below) - unfortunately , the ASX200 is very likely to lag this time unless our banks can regain some love.

 
 

Market Matters is feeling comfortable with its 3 current short term positions in the resources sector (alarming in this market!):

  1. BHP $15.26 - purchased ~$14.20, sold half the holding on Friday ~$15.35. The target on the balance is ~$18 with stops now at $14.50.
  2. RIO $39.65 - purchased ~$39.65 target $45 area with close stops at $38.80. Depending on price action we may take half profit ~$41.
  3. FMG $1.535 - purchased ~$1.54 our initial target is $1.80 and then over $2 with close stops now at $1.48 due to its cost of debt significantly blowing over recent weeks conversely and improvement here could catapult the stock higher.

Fundamentally it is hard not to be bullish oil from current levels on a medium term outlook due to the simple cost curve - only 4 of the 13 major oil producers make money under $US40/barrel - see below.

Consequently the taps will be switched off soon if oil cannot rally back over $US40/barrel and ideally $US50/barrel with 7 producers needing prices over the higher level, hence one of the reasons we were happy to buy the panic sell off in BHP last week.

 

We remain confident that the recent volatility that has been experienced in 2016 will raise its head a number of times during the course of the year.

China and crude oil may not be the only "whistle-blowers in the coal mine" this year and our tip is to watch Russia as its problems are reflected in future equity markets, as they are running out of money!

The stock markets' strength at the end of last week was sparked by signals of further economic stimulus by the ECB (European Central Bank) and then Japan - the Nikkei surged almost 6% on Friday.

Central Bank economic stimulus, or at least anticipation of it, is likely to send both the $US and equities higher as also witnessed last week. We will be watching both very carefully as Market Matters is still predicting a top for the $US in early 2016 which implies that equities will also top - it may be a lower top for stocks than in 2015.


Standout technical chart of the week

Westfield Group (WFD) $9.78 - Market Matters remains bullish targetting close to $11 i.e. a 10+% increase.

WFD has held well and within a relativeyl tight trading range during recent market volatility which is an excellent indication that the investors are a buyer of any weakness in the company's share price.

Market Matters will ideally take profit on its Mirvac Group (MGR) position around the same time that WFD pushes to fresh highs.


Summary:

Market Matters is cautiously bullish equities at current levels. However this positive stance will be repealed if we see a sustained break of 1850 by the S&P500 index i.e. only 3% below Friday's close.

We still believe that the battered resources sector will have an improved year and we will not be afraid to take short-term trading positions (in a similar manner to recently purchases.

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


What Matters this week

The ASX200 looks likely to open up around 70 points on Monday after Fridays second successive strong performance by the Dow.

                               Potential Investing opportunities for the coming week

          •  Market Matters advocates patience at current levels as we look to lighten some holdings into potential market strength.

                              Potential Trading for the coming week

          •   Short-term follow the above plan for BHP, FMG and RIO.

 Portfolio / Trade Holdings

The Market Matters portfolio had a poor week underperforming the ASX200 but trading / short term positions in resource stocks are looking good. - the ASX200 was up 0.5% for the week.

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

2. ANZ Bank (ANZ) -5.9% - medium term investment.

3. Bendigo Bank (BEN) -0.8% - medium term investment.

4. BHP Billiton (BHP) +0.9% - short term trade.

5. Commonwealth Bank (CBA) -2.3% - long term investment.

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

7. Seek (SEK) +0.3% - medium term investment.

8. Suncorp (SUN) -1.0% - medium term investment.

9. Oil Search (OSH) -6.9% - short / medium term trade.

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

11. Fortescue (FMG) unch.- short / medium term investment

12. Rio Tinto (RIO) unch. - short / medium term investment

  •  Cash position now ~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 2-year Interest Rate Monthly Chart


American Equities

The American indices have fulfilled a classic 3-4% correction and are bullish from a risk / reward perspective:

· The S&P500 is bullish unless we see a sustained break of the 1850 area. i.e. 3% lower.


Chart 8 – Dow Jones Index Monthly Chart


Chart 9 – Russell 3000 Weekly 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

Most European Indices have struggled over the last 5 weeks, but hints of further ECB stimulus may ignite a rally. The UK FTSE is technically targeting a 8-10% rally from Fridays close.

Chart 15 – Euro Stoxx 50 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. Short term they look oversold.

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 very interesting short term.

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 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 bounced very well after panic selling hit the market last week.

Iron Ore remains close to multi-year lows and may achieve a small bounce in the next few months like crude oil has.

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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