Market Matters Report / Market Matters Weekend Report Sunday 14th May 2017

By Market Matters 14 May 17

Market Matters Weekend Report Sunday 14th May 2017

Market Matters Weekend Report Sunday 14th May 2017

The ASX200 is trading in a very volatile manner at present as different sectors / stocks switch from heroes to villains in a matter of days. It remains our opinion that both the local and US stock markets will experience classic "sell in May and go away" seasonal weakness but it's likely to continue to be a very choppy correction as the overall medium-term trend remains clearly bullish. By Fridays close the ASX200 had corrected 2% from the high on May 1st, while the US market continues to tread water our "best guess" at present is the American indices will correct ~5% over the next 4-6 weeks while the local market which has pre-empted this decline will probably outperform and struggle to fall more than another 3%.

The below numbers are worth keeping firmly in mind as we are now already half way through May:

1. The average correction since the GFC over the May-June period is 6.9%, to-date we have corrected 2%, hence if 5956 remains the high for May the eventual average downside objective is ~5550.

2. If the ASX200 is going to correct the full 904-point advance since the US election in November the initial technical target would be the 0.382-Fibonacci retracement at 5610, just above major support at 5582.

3. CBA has already corrected $8.91 / 9.3% from its recent high, the average pullback in CBA during May / June, since the GFC, is just over 10% which targets ~$79 from the $87.74 high i.e. a slight break of last week's panic low around budget time.

4. Assuming we get a May-June correction both locally and globally we will then again become bullish for further advances for stocks through 2017.

Hence, we remain comfortable holding greater than 30% of the MM portfolio in cash as buying opportunities remain likely at better levels in coming weeks.

Most importantly subscribers must remember how we believe the market is positioned going forward to understand our alerts / positioning i.e. We only anticipate another 6-8% upside for global equities before the bull market since the GFC is complete and a painful +25% correction unfolds.

Investors should be comfortable to miss some of the last few percent advance by global equities given we maybe sitting in a large % of cash! Hence most MM alerts over coming months on the buy side will be attempting to gain a quick 10-15%, or a free dividend - we believe the time in this cycle to buy and hold a stock for 20-30% gain in the majority of cases is well behind us. We should remember Baron Rothschilds famous quote for one of the reasons he made billions, paying special attention to the sell part of the statement.

"I never buy at the bottom and I always sell too soon.” – Baron Rothschild

ASX200 Daily Chart

Global Indices

The US market continues to follow our script which does not bode well for stocks over the coming weeks, the MM view for US indices moving forward remains the same:

1. We now see a correction of close to 5% with the "small cap" Russell 2000 leading the way in both weakness and clarity.

2. We will regain our bullish stance for US stocks if this correction unfolds.

Our anticipated correction for US stocks potentially coincides with an eventual test of the 5700, or 5600, area for the ASX200. It's been a while since we turned on the Bloomberg at ~6am to see the Dow down 200-points, we feel a decent downside washout is becoming rapidly overdue. So far, the US S&P500 has had an extremely low range for May considering half the month has already gone, only ~24-points when the average month usually delivers ~70-points. Hence remembering the DOT Theory, which we have explained over recent months, a break of last week's 2379 low should be bearish at least short-term i.e. a break 0.5% below Fridays close.

Russell 2000 Weekly Chart

Two markets which are leading the bull market advance for global equities and are also currently moving very nicely in sync are the US NASDAQ and European STOXX. We are watching these 2 markets very closely for clues as to the twists and turns this bull market will provide as it matures after rallying for ~8-years.

1. The EuroStoxx is in the classic acceleration phase of its advance from 2678, with a 3-4% consolidation / correction likely soon before the advance continues - this is why we are comfortably long CYB and HGG.

2. The US NASDAQ is in the classic acceleration phase of its advance from 3888, with a 4-5% consolidation / correction likely soon before the advance continues.

Importantly while we are expecting a correction in global equities over coming weeks (end of May / early June) we still remain medium-term bullish (rest of 2017 early 18).  Of course longer term we are concerned about the state of global economies and ammunition (or lack of) available to Central Banks if /when the next shock comes – hence our call for a ~25% correction.

Interestingly, this is a view shared to some degree by Ray Dalio – the Founder of Bridgewater Associates, a massive Hedge Fund in the states which manages $150b. In recent days, he has become more vocal about his longer term concerns for global markets. In very simple terms, he sees no real economic worries for the economy as a whole right now, the next shock that hits markets (and they are inevitable) will be sizable given ‘Significant long term problems’ such as high debt levels and limited central bank power ‘that are likely to create a squeeze’.

EuroStoxx 50 Monthly Chart

US NASDAQ Weekly Chart

Banks and Financials

Medium-term we remain bullish the financials index targeting around 12% higher but we believe the current 6.7% correction has a little further to go. Ideally, we will see the financial index correct another 3.5% and the banking index a further 2%. However, with NAB and Westpac both trading ex-dividend next week the majority of this pullback will become self-filling, our plans for next week, considering we are holding over 30% in cash:

1. Westpac (WBC) $32.57 - We are currently on the bid for 5% allocation under $32 / 1.7% lower before next week's dividend.

2. Commonwealth Bank (CBA) $81.67 - We are currently on the bid for 5% allocation under $80 / 2% lower.

We are likely to "pay up" for one of these orders next week considering how far the banks have already fallen and then remain pedantic on the remainder.

*Watch for alerts*

ASX200 Financials Index Quarterly Chart


No change, we are bullish the resources space looking for the big cap miners to follow AWC who rallied over 10% last week!

Technically BHP will look strong if it can close back over $24, this should lead to a quick 5-6% rally - the stock closed mildly higher at $23.83 in the US on Friday.

BHP Billiton (BHP) Weekly Chart

One of our favourite stocks recently has been Alumina (AWC) which soared last week, however as explained in the reports at the time, this was not added to the portfolio given our large resource exposure at present and desire to maintain higher cash levels.

We would be keen buyers of AWC under $1.80 as a trade only due to our resources position being large enough for now, note we would still be technically concerned on a break under $1.60.

Alumina (AWC) Monthly Chart

Over the last 3 weeks Regis Resources (RRL) has frustrated us by failing to reach our $3.05 buy level - on 3 occasions it has flirted with the $3.10 area.

We are now looking to buy the 5% portfolio allocation early next week as the controlling Gold ETF is now threatening the bullish breakout we have been targeting. Technical buying in the Gold ETF leads to buying of the stocks that underpin the ETF.

Gold ETF Monthly Chart

Standout technical chart (s) of the week

The VIX chart illustrates perfectly that we are due at least a few days spike up in volatility which would coincide with a decent fall in the Dow. On a risk / reward basis it looks extremely dangerous to assume the market will remain calm for the next few months.

Our view is a few false scares as US stocks try and fall away but find good buying into any reasonable weakness.

The Fear Index (VIX) Weekly Chart


No major change, we continue to believe that US and local stocks can add to their recent gains into 2017, and potentially 2018. Right now we’re in a seasonally weak period and volatility measures are at 20 year lows, the US market is looking tired which are ingredients for a short sharp move lower, however we think prevailing weakness is a buying opportunity for another leg higher in the medium term.

1. Buy Westpac under $32 - 5%.

2. Buy CBA under $80 - 5%.

3. Buy RRL early on Monday.

We are likely to pay up for one of CBA or WBC. 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 unchanged on Monday, we are ready to buy anticipated weakness in local stocks over coming weeks.

Potential Investing opportunities for the coming week(s)

1. We are looking buy at least one of CBA / WBC next week after the decent correction in the banks to-date.

2. We are looking to allocate 5% into RRL next week.

Potential Trading opportunities for the coming week

Buying Alumina (AWC) under $1.80 running stops under $1.60

One for the very brave! We can buy TPG Telecom (TPM) around Fridays close of $5.94 but with a definite exit on failure under $5.68 i.e. 4.5% risk. We are targeting $6.50-$7 so good risk reward.

Portfolio / Trade Holdings

The Market Matters Portfolio as of today is below, notably we have a significant cash holding of 33.5%. We have been more active than usual over recent weeks/ months which is to expected as this major 8-year bull market matures over the coming weeks / months.

Weekend report Charts / Chart Pack

The Market Matters Weekend report charts can be found below:


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.


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 13/05/2017. 10.00PM.
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