Market Matters Report / Market Matters Weekend Report Saturday 27 February 2016

By Market Matters 27 February 16

Market Matters Weekend Report Saturday 27 February 2016

Market Matters Weekend Report Saturday 27 February 2016

Market Matters’ Weekend Report

Hello everyone and we hope you are enjoying the last weekend of the Australian summer!


Last week was yet again both volatile and disappointing for the local stock market. The ASX200 fell 1.5% while the American S&P500 continued its 3-week rally gaining 1.6%.

Overall, the S&P500 has rallied 8.4% from its lows on the 11th of February to last night's high but please note that for US equities we now expect at least a 3% correction from Friday’s close before the market shows its hand.

Turning to the Markets

At present the bigger picture is very tricky with conflicting signals from different markets and stocks:

Bullish - Ramsay Healthcare, US equities, Emerging Markets (they need to break last week's high), Seek (SEK), Telstra (around here), Westfield and Amcor (AMC).

Bearish - Australian Banking Sector, BHP and RIO.

With the ASX200 largely dictated to by its large banking sector, recent significant local underperformance is not surprising i.e. since the 11th February low the S&P500 has rallied 8.4% while the ASX200 from its low on the 10th February is up only half this at 3.7%.

Interestingly, last night the Dow gave up its gains of ~100 points to close lower even after strong GDP figures showed the US economy is stronger than many had thought.

With both gold and equities heading higher in the US over recent weeks are some investors now considering further QE as likely? It would make sense because negative interest rates have scarred many. Market Matters believes we will need this QE if US stocks are going to follow their technical picture and reach fresh all-time highs in 2016.

Markets are swinging wildly between positive and negative sentiment; it seems we have moved on from China for now as evidenced by the fact that markets ignored the 6% plunge by Chinese stocks on Thursday, a move that would have caused havoc locally (and perhaps globally) only 3-4 weeks ago,

The focus has now turned to risks for the Australian property market and consequently to bank profitability exacerbated as much of the world moves towards negative interest rates.

One observation the Market Matters team has made over decades in the markets is that ‘Black Swan’ events are rarely in the press before they occur and it's often a signal to consider investing in the complete opposite direction!

On a side note, the volatility Index has dropped back below the psychological 20% area which feels optimistic - see chart 6. In simple terms this level of volatility is implying a 30% chance of a 10-15% decline by US stocks before Christmas which feels reasonable.

One thing that Market Matters remains very confident with is further volatility for financial markets during 2016.

While the US market has enjoyed a strong 3-week rally (as shown above) the local market is far more neutral, as illustrated by the 60 mins SPI Futures chart below.

The ASX200 has strong support around 4700 and resistance at 5050; we are currently right in middle of this range.

Taking into account our short-term negative view on US stocks and the local market’s inability to rally on good news, a test of the downside support feels the most likely scenario near term.

Technically, Market Matters largest concern is with the Australian banking sector where the long term picture is simply ugly unless the banking index can close back over 7650 - see below.

This almost profound statement is hardly surprising considering the banks 30+% decline since early 2015 but the obvious question is “what should investors, and ourselves do now”?

Longer term, we like the banks as the Australian population will continue to grow but, as mentioned above, they are currently under pressure on many fronts. It should be remembered that recent capital raisings have significantly strengthened the balance sheets of our major banks making them amongst the strongest in the world. It should also be remembered that the big 4 Australian banks survived the GFC without this extra cash on their balance sheets.

Nevertheless, the Australian Banking Index is still trading over 100% above its GFC lows!

Market Matters remains comfortable to accumulate banks into weakness for the longer term, especially for sophisticated investors who can write calls on their holdings to increase yield / improve entry levels.

However, we want to see panic selling before we average our holdings and this is not apparent ….yet.

One thing investors MUST not do is assume that big fat and increasing dividends from banks will last forever; everything is cyclical, remember BHP last week!

Fortunately, we liquidated our BHP, FMG and RIO holdings very close to last week's highs and just prior to a savage decline.

The trend for BHP remains clearly down and Market Matters would want to see panic lows under $14 before initiating another aggressive trade. If BHP rallies from here we are relaxed and have lost nothing i.e. be patient.

Standout technical chart of the week – Ramsay Health Care (RHC)

  • From a risk / reward stand point buying RHC, but targeting levels to take profit for those investors who are long is also important.
  • Aggressive investors can buy RHC with stops at $61 targeting $70 - slightly better 50-50 risk reward but an excellent technical and fundamental set up.
  • We are bullish RHC targeting over $70 where we would be taking all / part profit.



  •  We remain positive US equities but concerned about the ASX200 with both banks and resources struggling. Last week saw the local market focus on bad news and ignore a rising US equity market. However, it is also noteworthy that the ASX200 didn’t panic with the significant fall on the Chinese market on Thursday.


  • Technically, the local market is neutral so buying should only be considered on bad down days and conversely selling into strength is advised.

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

What Matters this week

The ASX200 looks likely to open unchanged on Monday after a quiet close on Wall Street.

Potential Investing opportunities for the coming week

  • Market Matters likes Telstra at these levels, especially for investors looking for yield but with some diversification away from the banks.
  •  Telstra goes ex-dividend 15.5c fully franked on Tuesday; we like the stock here as both a medium term and safety play.

Potential Trading opportunities for the coming week

  •  Unfortunately, nothing clear at present on a trading level.

Portfolio / Trade Holdings

The Market Matters portfolio had a good week with profits taken in BHP, FMG and RIO basically on their highs. The banks let us down a bit with huge worries fermenting through the media around local property prices sending the banking index down over 3%. An excellent week for both Seek and Healthscope (HSO) helped repair some of this damage. - the ASX200 retreated 1.3% for the week.

  •  Cash position now up to ~15%.

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, the FTSE looks the strongest at present.

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 mildly bullish targeting a 20% rally from current levels IF it can break last week's high.

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 enjoyed the strong counter-trend rally that we anticipated, new lows would now not surprise. Banks continue to underperform on worldwide economic worries especially focusing on property and implication on earnings of negative interest rates.

Chart 23 – BHP Billiton (US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Weekly 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) Quarterly 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 38a – AMP Ltd (AMP) Weekly Chart

Chart 38b – Henderson Group (HGG) Daily 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


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 a significant rally.

Iron Ore remains close to multi-year lows but it has now rallied over 25% from its recent panic levels on decent demand.

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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