Market Matters Report / Market Matters Weekend Report Sunday 11th June 2017

By Market Matters 11 June 17

Market Matters Weekend Report Sunday 11th June 2017

Market Matters Weekend Report Sunday 11th June 2017

The ASX200 endured a bad week falling 111-points / 1.9% although the market rallied fairly strongly from the 5600-important support area. Since May 1st the local market has corrected 327-points / 5.5% while at the same time the Dow closed at fresh all-time highs on Friday, illustrating perfectly that respective market correlations only go so far - the Dow has actually rallied 1.7% since the start of May. A number of things have caught our eye this week and we feel the rest of June is shaping up as an extremely interesting period for equities. The market is still trading in the classic "sell in May and go away" seasonally weak period for stocks but the internals of the Australian market are improving rapidly which leads us to a short-term "sit on the fence" viewpoint (with a bullish bias) but some good risk / reward signals are evident within different market sectors.

We are currently holding 10% of our MM portfolio in cash which feels perfect just here, in general we will buy further weakness and continue to sell strength where appropriate i.e. our anticipated action plan for the next 6-12 months before we foresee a move more heavily into cash. Friday night's 5-hour 4% plunge by the in-vogue NASDAQ-100 confirms our opinion that increased volatility and hence opportunities are very close at hand.

The following 3 updated statistics and views should be kept firmly in mind with June now around 30% behind us:

1. The average correction for the ASX200 over the May-June period since the GFC is 6.9%, which targets 5545 - so far, we have experienced a 5.5% pullback to 5629. If the ASX200 is going to correct the full 904-point advance since the US election last November the initial technical target would be the 0.382-Fibonacci retracement at 5610, just above major support at 5582. These statistics / levels imply to us that if the opportunity arises below the 5600 area it represents great buying.

2. CBA has already corrected $10.04 / 11.4% from its recent $87.69 May high, but the average pullback for CBA during May / June since the GFC is just over 10%, hence the seasonal statistical pullback is fully satisfied.

3. The June range to-date for the ASX200 is now 164-points from 5629 to 5793, hence a further extension of at least 50-points is statistically likely in one direction.

The SPI-futures are pointing to a mildly higher open on Monday. While we have some strong firm opinions on a number of sectors the overall index is little tricky just here although we have a positive bias:

We are neutral at Friday's close but see a rally towards 5800 if the index can break clear of Fridays 5692 high, conversely, on the downside we would hold back with any buying until a test of major support at 5582.

ASX200 Daily Chart

Global Indices

The US stock market was fascinating on Friday night as the outperforming NASDAQ mega caps were smacked as investors appeared to switch into the relatively weak financials and resources. We often say that the NASDAQ leads which has definitely been the case since the GFC but while Friday is only a hiccup to-date and nothing more sinister at this stage, we do believe it's a warning that should not be ignored. The MM view for US indices moving through June are as follows:

1. While we ultimately still see US stocks rallying a further 6-8% from current levels but a short-term 5% pullback feels very close at hand - not a particularly aggressive call with the NASDAQ falling 4% on Friday alone at one stage.

2. The Dow looks positioned for another 1-2% upside into June but we will turn short-term negative on a close back under 21,100 for the Dow and 2400 by the S&P500.

Our view of Fridays large volatility within the mega cap tech stocks is their back has probably been broken for at least a few months e.g. APPLE -3.9%, Facebook -3.3% and Google -3.4%.  Our view at this stage is the NASDAQ 100 rotates between 5600 and 5900 for a few weeks as investors continue to search for better value within some of the lagging market areas. e.g. since early March the US banking sector had corrected over 12% while the NASDAQ continued to  rally an additional 10%. It was inevitable at some stage that fund managers were going to press the switch button as was finally witnessed on Friday night.

US NASDAQ 100 Weekly Chart

Dow Jones Index Daily Chart

Banks and Financials

The US banking sector rallied strongly last week gaining over 5% setting the index back on course for fresh 2017 highs, around 12% higher. The local banking stocks manage to bounce ~1% from their lows last week but largely ignored the positive leads from the US. The SPI futures are not pointing towards any anticipated buying early next week but we are leaning very much on the bullish side following recent moves targeting at least a 3% rally by the banks from Fridays close.

1. We are strongly considering increasing our exposure to either NAB or WBC by another 2.5% early next week.

US S&P500 Banking Index Weekly Chart

National Australia Bank (NAB) Weekly Chart

Resources

We remain bullish the resources space looking for the big cap miners to add to their strong gains from early May and hopefully Fortescue to add to its strong 8.8% bounce from last Thursdays low.

We followed through with our recent "standout chart of week" by buying FMG when it broke under $4.66, we are still targeting ~$5.50, or 13% higher. This was a great example of MM stalking and then buying a stock at our ideal purchase level, in this case following a 36% correction, now let's see if the analysis proves correct over the coming weeks / months.

Seasonally the resource stocks are due one more dip lower before rallying into mid-August but we feel the lows are already be in place for 2017.

Materials Index Seasonal Chart

OZL has put us under a decent degree of pressure, primarily in May, but the stock is now looking good as it follows the recovery in copper. If the stock can add to Fridays gains and break back over the $7.80 area we will again be targeting the $8.50 area. Considering the seasonal position of the resources sector this is feels a strong possibility by around August.

OZ Minerals (OZL) Daily Chart

The yield play now looks under

Standout technical chart (s) of the week

This week a lot of publicity has followed a prominent fund manager's decision to liquidate his entire equity holdings and return funds to investors. Today we have used 2 global index charts to illustrate why we believe he has been premature in his actions.

1. Japanese Nikkei - We remain bullish targeting ~22,000 or close to 10% higher.

2. Swiss SMI Index - We remain bullish targeting ~10,000 or close to 10% higher.

If both these indices are going to gain ~10% in 2017/8 its unlikely other global markets are going to suffer badly.

Japanese Nikkei Monthly Chart

Swiss SMI Index Quarterly Chart

Summary

No major changes, we continue to believe that US and local stocks can add to their recent gains into 2017, and potentially 2018. Our current thoughts:

1. Take profit on TLS close to $4.60.

2. We are losing confidence that the ASX200 will fall much further this May-June.

Bigger picture we continue to believe the ASX200 will break over 6000 in 2017.

What Matters this week

The ASX200's is set to open up ~5-points on Monday, we believe the market will struggle to add to these small gains short-term but it's definitely tricky around the 5800 area.

Potential Investing opportunities for the coming week(s)

1. Buy an additional 2 1/2% WBC if the ASX200 challenges the 5600 area.

2. We are sellers of TLS ~$4.60.

* Watch out for trading alerts.

Potential Trading opportunities for the coming week

For the trader we can still buy FMG via stock / or options under $4.70 targeting a 20% rally over the next 3-4 weeks.

* Watch out for trading alerts.

Portfolio / Trade Holdings

The Market Matters Portfolio today is linked below. Last week we reduced our cash position to 10% by allocating 5% into Seek and Fortescue, an additional 2.5% into CBA plus switching 3%, of our 8% holding in HGGDA, into 5% of BT Investment.

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-9th-june-2017/

Weekend report Charts / Chart Pack

The Market Matters Weekend report charts can be found below:

https://www.marketmatters.com.au/chart-pack/

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday.

Disclaimer

All figures contained from sources believed to be accurate.  Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy.  Prices as at 10/06/2017. 3.00PM.
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