Market Matters Report / Market Matters Weekend Report Sunday 12th March 2017

By Market Matters 12 March 17

Market Matters Weekend Report Sunday 12th March 2017

Market Matters Weekend Report Sunday 12th March 2017

Last week the ASX200 followed the MM script very closely with the banking sector rallying 2.6% while the resources were thumped e.g. BHP -6.6% and RIO 3.2%. We followed our plan accumulating BHP, RIO, EVN and RRL into this expected weakness so let's hope the market has read our reports this week and we see some love returning to these stocks moving forward. We have a little more capital that may be allocated into RIO and RRL if we see an opportune time next week but our buying is almost complete as we are essentially, almost fully committed to the market - hence our sellers hat is likely to be dusted off in coming weeks. We love being "busy" in the market, we find there is nothing better to focus one's mind than activity. Remember the anecdote from Fridays am report:

When Warren Buffet and Bill Gates were asked to write down in one word the reason for their success they amazingly both wrote the word "focus".

First off today let's look at the ASX200 as we sit 1/3 of the way into March and the very strong seasonal month of April looming. A few statistics are catching our eye:

1. The ASX200 has rallied 106-points from its low on the 1st of March, but the average monthly range over the last 12-months is 310-points, with the lowest range 199-points. Hence if we assume that 5675 is the low for March the strong likelihood is the ASX200 will at least test 5900 this month.

2. The quarterly range for the ASX200 is currently only 251-points but over the last 12 quarters the average is 530-points, although the smallest range is 204-points, but the second smallest range was 416-points. Hence again in this case if 5582 remains the 2017 low this month, we could easily see 5900 this March.

Hence when look at the ASX200 on a purely statistical basis the message is remain long Australian stocks and do not be surprised if they are very strong in coming weeks.

Also we should remember the "seasonality" that we have outlined a few times over many weeks i.e. March and April is very strong for the ASX200. This supports our bullish outlook for local stocks into the end of April when hopefully we will start taking profit on a decent percentage of our portfolio.

Lastly If we now apply some common sense it's easy to imagine the same effect that has manifested itself in the US slowly rolling into the local market. It still feels like a number of fund managers are underweight Australian equities citing valuations and potential macro risks as reasons to have plenty of cash on the sidelines. However if / when the ASX200 breaks over the recent 5800 resistance area a quick rally to 5900 can unfold as they are forced to put some of this cash to work sending the ASX200 to a fresh level of equilibrium which we now feel may be closer to 6000 by time people start quoting "sell in May and go away".

ASX200 Quarterly Chart

When we quickly glance at US stocks there is currently nothing on the radar to concern us with regards to our bullish outlook for locals stocks. Last week we saw the ASX200 rally 0.8%, even with resources under pressure, yet the Dow fell ~100-points. We think the local market will finally outperform the US over the next ~6-weeks.

Our current best guess for the Dow is it will grind up towards a fresh all-time high around 21,500 before consolidating the "Trump gains" for a few months.

There were some very interesting market reactions to the US employment data on Friday night with the unemployment rate coming in at 6.6% compared to an expected 6.8%, the data overall pointed to a very solid US economy. The Fed look certain to raise interest rates this week and perhaps even have the ammunition for 4 hikes in 2017 as opposed to their forecasted 3. However the $US fell, US bond yields ticked lower and stocks remained firm. We remain comfortable with our contrarian view that the $US's next 10% move is down, this is generally bullish for both gold and commodities.

Dow Jones Daily Chart

The backbone of the recent strength in the ASX200 has been the index dominating banks with for March alone ANZ +4.3%, CBA +2.6%, NAB +3.7% and WBC +4.2% - the banking Index has gained 3.5% over the same period. Considering we were targeting the banks to gain ~6% over March and April combined it cannot be ignored that a substantial part of our expectation has been achieved only 1/3 of the way into March. Hence we remain bullish the banking sector into April but anticipate a slow down in momentum for the recent advance.

We are watching our Macquarie Bank (MQG) position in particular, we are likely to take profit on the 4% portfolio holding over $90 - a target we have held for a few months.

The overall Banking Index has rallied strongly from its lows just over a year ago and is now only 13.7% below its all-time high. A break above the March 2015 high is a possibility as global bond yields rally, especially if overseas indices can gain a further 8-10% as we think possible - as we like to say "remain open-minded".

ASX200 banking Index Monthly Chart

The resources sector has corrected aggressively as we had been targeting and MM stepped up and bought BHP and RIO last week. These positions are slightly underwater at present but we will again refer to Baron Rothschild's quote as to how he became immensely wealthy by investing in the markets:

"I never buy at the bottom and I always sell too soon." - Baron Rothschild 1840-1915.

BHP has now corrected 15.8% and RIO 15.7%, while its always very difficult to say whether or not this retracement will run further we are comfortable to buy these targeted areas. If we are correct, they will break their 2017 highs moving forward and these entries will prove intelligent. A drop of 1-2% is irrelevant. i.e. up from 3% to 5%.

RIO Tinto (RIO) Weekly Chart

We also stepped up last week increasing our recent foray into the Gold Sector with a 2.5% purchase of RRL just over $3. The plan is to add another 1.5% if RRL spikes under $3.

Regis Resources (RRL) Weekly Chart

Standout technical chart (s) of the week

The medium term outlook for Emerging Markets is bullish technically targeting a retest of their 2011 highs. This is very positive indicator for the ASX200 and especially our resource stocks.

Emerging Markets iShares ETF Monthly Chart

Summary

We continue to believe that US and local stocks extend recent gains well into 2017, and potentially 2018. Ideally over coming weeks the banking sector will remain firm and the resources will again start some of the heavy lifting for the ASX200.

We believe the ASX200 will break over 6000 in 2017.

What Matters this week

The ASX200's is set to open up around 10-points on Monday, short-term we believe a clear break of the 5800 area for the market will lead to a quick rally to 5900 and probably beyond.

Potential Investing opportunities for the coming week(s)

We are looking to add 2% to our RIO holding under $59 and 1.5% to our RRL position on a spike under $3. Conversely we will take profit on our Macquarie Bank position over $90.

Potential Trading opportunities for the coming week

Last week we closed out our short FMG position and may initiate a long if FMG spikes to around $6.  TPM is not exciting us at present and we may exit this position for a small loss in coming weeks. 

Portfolio / Trade Holdings

The Market Matters Portfolio as of the 10th March is below:

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-10th-march-2017/

Last week we were active in the market following our plan to accumulate BHP, RIO, EVN and RRL into weakness. We now only hold 8% in cash, plus we own a long TPM trading position.

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 11/03/2017.  1.00PM.
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