Market Matters Report / Market Matters Weekend Report Sunday 13th August 2017

By Market Matters 13 August 17

Market Matters Weekend Report Sunday 13th August 2017

Market Matters Weekend Report Sunday 13th August 2017

Some distinct “wobbles” occurred within global equity markets last week as the tensions between the US and North Korea reached new heights. US stocks had their largest one day fall since May and the Fear Index (VIX) rallied close to 50% for the week – no great surprise with talks of war have also way too often been accompanied with the word nuclear. Clearly we have absolutely no idea what either Donald Trump or Kim Jong-un are thinking / planning but our best guess is lots of more ego based sabre rattling with hopefully little action. As investors / traders we can only follow our thoughts / plans of recent weeks and prey common sense will prevail on the geo-political level. Importantly we are still sitting on a high 23.5% cash position within the MM Platinum Portfolio and are hence wearing our “buyers hat”, North Korea tensions may just give us the precise opportunity we have being both patiently and frustratingly waiting for.

Let’s quickly again look at the ASX200’s “trading patterns” with the first 2-weeks of August is now behind us: 

  1. Short-term Neutral Pattern between 5629 and 5836.
  2. Medium-term Neutral Pattern between 5582 and 5956.
  3. August’s range to-date is 5674-5794 i.e. 120-points, compared to July’s of 146-points.

MM is still ideally targeting a further ~200-point correction towards the 5500 area i.e. 3-4% lower in August / September. Investors should be aware that the local market is paying some big dividends over coming weeks e.g. CBA and Telstra. Hence a drop of ~100-points, plus major stocks trading ex-dividend, and the ASX200 will already have ~5500 in its sights.

We feel a break of the major 5629 support that has held for the last 10-weeks is likely to see a quick move towards our targeted area. Seasonally local stocks usually struggle in August and September plus we are getting some distinct sell signals from the US market which has soared since Donald Trump’s election victory. Hence on balance, considering how long the local market has traded sideways we believe a decent drop lower in the next few days / weeks is a strong possibility which would provide an excellent risk / reward buying opportunity – that remains our current plan in a nutshell. However we must again acknowledge any weakness over recent weeks has encountered solid buying.

Today we are going to focus on our current “shopping list” if we simply get a broad based market sell off, as opposed to stock specific weakness.

ASX200 Weekly Chart

Global Indices

In the bigger picture while we believe the bull market for equities which began back in early 2009 is very mature we don’t believe it’s yet time to jump ship. Ideally stocks will experience increased volatility as they climb the ever steepening wall of worry towards the +2100 area – just like last week!

We are targeting a ~6-7% pullback over the next 1-2 months by the Global World Index i.e. a further 5% weakness following last week’s drop. We think the ASX200 and European markets are likely to outperform during this period as they have been in correction mode since May, plus they are likely to bottom first.

MSCI Global World Index Quarterly Chart

The US stock market has played along with our forecast for the vast majority of 2016/7, if this continues last week’s bump in the road has definitely further to play out. Last week the US S&P500 fell 2% from the weekly high and we are now targeting the 2350 area, just under 4% lower which ties in well with our target for the local ASX200.

US S&P500 Weekly Chart

European stocks have been in correction mode since May, with the German Dax already 7.2% below its 2017 high. We are only targeting ~11,700 before we would be looking for buying “backfoot” opportunities i.e. we only see another 2.5% downside before we would be become neutral / bullish. Interestingly, the two most popular trades at the moment are long tech and long European equities according to a recent fund manager survey. You may recall that at the end of last year, the ‘long’ $US  was the most popular trade and since then that has dropped ~10%.

In the bigger picture through we still see German stocks trading well over 13,000 before major alarm bells will ring.

German DAX Weekly Chart

German DAX Quarterly Chart

Asian Indices came back to earth with a thud last week, led by the overheated Hang Seng which tumbled ~1000-points / 3.6% from its weekly high. We have no clear signals at present but remain concerned by an index that has rallied ~30% as a safe haven for Chinese cash as opposed to value of the underlying shares. We discussed the Hang Seng specifically last week concerned about the lack of breadth to its rally.

Hang Seng Weekly Chart

“Shopping List”

Preparation is everything, especially when we are looking for a spike lower as a buying opportunity. Market bottoms / excellent buying opportunities are often gone within 24-hours. However if we have a clearly defined shopping list of stocks plus ideal levels we have a far greater chance of not missing out, most of the below has been discussed in reports over the last few weeks. 

  1. Banks – We may add 2.5% to CBA / NAB after their respective good results, ideally ~2% lower. We also like BOQ around $12.
  2. Consumer Services – Aristocrat ~$19.
  3. Diversified Financials - Macquarie Group (MQG) under $83 following the strong sector performance from IFL and JHG. Plus potentially IFL if it falls to around $10.50.
  4. Energy – Origin as a trade ~$6.10.
  5. Food and Beverage – Treasury Wines (TWE) ~ $11.75.
  6. Healthcare – Not a sector we currently love but Healthscope (HSO) ~$2.13 looks great technically
  7. Resources – We like OZL as a trade ~$8.20.
  8. Real Estate – Another sector we are not keen on but Lend Lease (LLC) under $15.50 looks strong technically.
  9. Telco’s – We remain buyers of Telstra (ITLS) under $3.90
  10. Leisure – We like Ardent Leisure under $2 as a more risky shorter term play.
  11. Retail – We still like Harvey Norman (HVN) under $4.20
  12. Packaging – Orora (ORA) under $2.95 following its great report.

Standout technical chart (s) of the week

We have discussed the Fear Index (VIX) in a number of reports recently and last week’s almost 50% rally illustrates why. On balance we believe this has further to play out but it’s clear that the 20% area has been a proverbial brick wall for the last decade apart from a few panic events e.g. BREXIT and the GFC. Perhaps another panic event is about to unfold?

Fear Index (VIX) Weekly Chart

Investing opportunities for the coming week(s)

Refer to the “shopping list” above. Ideally we are looking to allocate a significant portion of our cash into the market ~5500 basis the ASX200.

ASX200 Daily Chart

Trading Opportunities on our radar

We have two stocks on our radar as trading opportunities:

  1. Oz Minerals around $8.20, basically where we exited previously but the landscape has changed, we now need a 4% correction to get set.
  2. Origin Energy (ORG) around $6.10 if we see a sharp drop.

Origin Energy (ORG) Daily Chart

Oz Minerals (OZL) Daily Chart

Summary

We are short-term bearish targeting a correction back towards the 5500 support area. Ideally this correction does unfold and we can be aggressive buyers in August / September.

Our Holdings

Our positions as of Friday. All past activity can also be viewed on the website through this link

Weekend Chart Pack

The weekend report includes a vast number of charts covering both domestic and international markets, including stock, indices, interest rates, currencies, sectors and more. This is the engine room of our weekend analysis. We encourage subscribers to utilise this resource which is available by clicking below.

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 12/08/2017. 4.00PM.
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