Market Matters Report / Market Matters Weekend Report Saturday 9 January 2016

By Market Matters 09 January 16

Market Matters Weekend Report Saturday 9 January 2016

Market Matters Weekend Report Saturday 9 January 2016

2016 arrives with a "Big Bang!"

Welcome to the weekend ! 


  • As stated in Friday's report the week felt like many months rolled into a few days, as over $US3 trillion was wiped off world equity markets in one week and $85 billion from the ASX in the worst week since 2011.
  • The catalyst for the selling was China as the world's second largest economy who joined many others of the world in devaluing their currency that previously it had artificially supported.
  • On Thursday the PBOC (Peoples Bank of China) set the Yuan 0.5% lower shocking many market players and sending equities spiralling as economists fear the world's inflation will continue to fall. The opposite to what Central Banks are trying to achieve !
  • Markets hate uncertainty and lack of transparency. China is creating confusion when they devalue the Yuan on one day and then implement measures to try and support the plunging share market it caused the next day.
  • However it should be said the US Federal Reserve did not do a great job of clearly conveying their intentions to the markets  around the recent rate increase, causing significant market  volatility and China is basically new to the free market game ! 


Turning to the Markets

  • Last week's plunge for equities clearly has forced us to rethink our short term view of one final push higher prior to a very tough awful 2016.
  • Market Matters now believes that US equity markets are still correcting the strong advance from July 2011 with a likely target below 2015 lows, around 3.5 - 4% below this morning's close.
  • When markets are in panic mode, like now, Market Matters believes in stepping back and looking at the big picture because panic equals opportunities !
  • Obviously it has been a disappointing start from equities for investors but it means quality companies are getting cheaper and if you are holding close to 20% in cash like Market Matters portfolio it brings bargains - we wish the cash position was higher as planned !
  • Investors should remember that the share market has been one of the greatest ever wealth creation vehicles BUT you want to be taking advantage of classic "Fear & Greed" and buying panic, which we are witnessing right now ! 
  • There are two parts to this simple investing equation : which stocks do we want to buy and at what price? Always sounds easy :)
  • The ASX200 is currently falling with overseas equities, so a test of 4800 in coming days / weeks would not surprise hence we believe buyers should remain patient.
  • Market Matters is no longer in "Sell Mode" , we have switched to neutral waiting to flick the switch to "Buy Mode"
  • Interestingly the Emerging Markets Index has reached our target area, albeit a touch quicker than we anticipated - see chart 21a.
  • Hence it is time to again start casting the ruler over the highly correlated resource stocks and remembering what happened to the local gold sector.
  • A number of major Australian gold stocks ralled strongly from July/August 2015 BUT the gold price did not bottom until December, a classic 5-6 month lag.
  • Yesterday with equities tumbling around the world and oil making multi year lows the Australian Energy Sector rallied 2.5% - it feels like it's time to accumulate,  also iron ore stocks managed decent gains. 
  • Stocks on our buy radar at present are Woodside (WPL), Oil Search (OSH) and BHP again. BHP is set to open under $16 on Monday and a break of $15 would look very compelling from a risk / reward perspective.

Bringing it all together

  • World equities are looking to fall another ~4% in coming days/weeks.
  • Investors should remain patient but get prepared for some solid risk / reward buying.
  • The ASX200 is likely now to break the recent 4900 support with a test of 4800 a likely objective.
  • Similar to Friday even with plunging commodities and worries over China we believe the hammered resources secor will start to outperform.

Chart of the week

Telstra (TLS) - we are waiting to be  a keen buyer in the $5 region i.e. ~5% lower - see chart 46


Market Matters has altered it's projection for 2016. Now we believe the market will be down another ~4% followed by a good rally prior to a major top

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

  What Matters this week

  The ASX200 looks likely to open down around 85 points on Monday after Fridays continued weakness in the Dow.


 Potential Investing opportunities for the coming week

Market Matters advocates patience, we are looking to buy ~4% lower

 Potential Trading for the coming week

Simply a short term sell followed by a reversal ~4% lower for trades of the index. Stocks are hard just here.


Portfolio / Trade Holdings

The Market Matters portfolio had an awful start to 2016, falling by around the same as the ASX200 as panic hit all world equity markets.  - the ASX200 was hammered 5.8%.

 1.       Ansell (ANN) -3.6% - medium term investment.

 2.       ANZ Bank (ANZ) -8.6% - medium term investment.

 3.       Bendigo Bank (BEN) -5.8% - medium term investment.

 4.       Commonwealth Bank (CBA) -7.1% - long term investment.

 5.       Healthscope (HSO) -4.1% - medium term investment.

 6.       Seek (SEK) -9.5% - medium term investment.

 7.       Suncorp (SUN) -5.3% - medium term investment.

 8.       Oil Search (OSH) -2.2% - short / medium term trade.

 9.       Mirvac (MGR) -3.8% - short / medium term investment.

  Cash position now  ~18%.

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

Chart 19 – German DAX Index Weekly Chart

Asian & Emerging Markets Indices

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

Chart 20a – Hang Seng Weekly Chart

Chart 20b – China Shanghai Composite Index Weekly 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 – Vale (US) Weekly Chart

Chart 29 – Newcrest Mining (NCM) Monthly Chart

Chart 30a – Regis Resources (RRL) Weekly Chart

Chart 30b – 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 33b – ANZ Bank (ANZ) Daily 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


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 and an exciting 2016, from Richard and the Market Matters team


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