Market Matters Report / Market Matters Weekend Report Sunday 15th January 2017

By Market Matters 15 January 17

Market Matters Weekend Report Sunday 15th January 2017

Market Matters Weekend Report Sunday 15th January 2017

Overview

Unfortunately not a very exciting report today as last week was very quiet for global equities with the ASX200 and Japanese Nikkei the only noticeable losers, albeit it on a small scale. The two thoughts that come to mind which explain the relative local weakness are overseas investors took some profits because the $A has rallied sharply ~3% and / or investors took some profits in our banking sector ahead of the US banks reporting. We lean more towards the later which may prove to have been a mistake with US financials rallying a solid 0.56% on Friday night after JP Morgan, Wells Fargo and Bank of America all achieved modest gains after reporting good earnings - overall  a good performance to close positive after the strong gains in the sector since Donald Trump's victory.

Our bullish view for the coming week (s) remains intact but the recent uncertainty adds weight to our thought that a reasonable correction is close at hand, hence we remain buyers of weakness and sellers of strength while comfortably sitting on 31% cash in the MM portfolio.

Technically a close over 5750 for the ASX200 is bullish targeting 5850-75 with stops under 5710 - we feel this is a strong possibility on Monday.

ASX200 Daily Chart

US stocks have consolidated recent gains over the last 5-weeks which is a positive sign considering the rally since November. Our preferred scenario is the Dow breaks through 20,000 before failing and correcting ~800-points but it's been like watching paint dry recently!

US Dow Jones Daily Chart

BHP has supported our recent opinion that the major resources stocks were set for some decent strength, in some cases to fresh highs for 2016/7. Following favourable economic data from China we have taken a RIO option position to follow this view. BHP closed ~$26.55 in the US this morning, up 22c from Fridays close.

We are still targeting a rally over $27 for BHP, ideally to challenge $28 where we are planning to hopefully take $$ on our long RIO position and reverse to a short trading stance within the resources space.

BHP Billiton (BHP) Weekly Chart

Conversely the miner IGO who we became bearish last year received a battering on Friday falling over 10% due to Nickel supply concerns. Importantly we remain bearish IGO targeting the $3.50-3.60 area.

Independence Group (IGO) Weekly Chart

A number of people have almost pushed us for an opinion on Bellamy's during the week as they clearly are wondering if the stock is "cheap" after its recent plunge. We're sorry but BAL is simply too hard at present, we like to take short-term trades when appropriate e.g. VTG, RIO and potentially JBH (see below) but Bellamy's is like "Two-up" just here without the fun and tradition

Bellamy's (BAL) Daily Chart

We will continue to outline our medium-term view in the Weekend Report because it's very important not to lose sight of the bigger picture. For the broad US Russell 3000 Index we are looking for further strength towards 1450 prior to significant correction back towards 1050.

"We remain committed to our forecast of ~8% further gains for US stocks prior to ~25% correction" - Market Matters.

US Russell 3000 Quarterly Chart

Standout technical chart (s) of the week

While we are neutral the retail sector as a whole JBH currently looks excellent, even managing to close basically unchanged during Fridays aggressive sell-off.

We are happy buyers ~$29 targeting $31.50 with stops under $28 - good risk / reward but clearly a short-term play / trade.

*Watch for alerts*

JB Hi-Fi (JBH) Monthly Chart

Summary

Our view remains that US and local stocks will rally over the coming 3-6 months but the next 1-2 months are likely to be a little testing for the bulls. Medium term after a rally of ~8% by US stocks we are targeting a 25% correction over a couple of years.

What Matters this week

The ASX200's is set to open up 30-points on Monday, short-term we can see a rally towards 5850-75 if the ASX200 can break back over 5750.

Potential Investing opportunities for the coming week(s)

We are now holding 31% in cash and are wearing our sellers hat into strength BUT our buyers hat into weakness = the theme of Q1/2 of 2017.

Potential Trading opportunities for the coming week

On the index front we still like the German DAX and Japan's Nikkei over coming months.

For the index traders we think the local market can be bought on Monday with stops under 5710.

We also like JBH for a  short-term play, see the Standout Chart of the week.

* Watch out for trading alerts.

Portfolio / Trade Holdings

The Market Matters Portfolio as of the 13th January is below:

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-13th-january-2017/

We are currently holding 31% in cash and remain sellers of strength and buyers of weakness in the short-term.

Australian ASX200

The ASX200 could easily break over 6000 before the significant correction we are targeting unfolds over the coming few years - the key remains to be open-minded.

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

Chart 3 – ASX200 Daily Chart

Chart 4 – March Share Price Index (SPI) 60-mins Chart

American & Canadian stock market indices

US stocks have surged over 11% since Donald Trump's victory with the Dow, Russell 2000, Russell 3000 and finally the NYSE Composite making fresh all-time highs. We are becoming more cautious stocks, our best "guess" at present is ~6-8% higher. Importantly US indices are in a very clear final "Phase 5" of a major bull market since early 2009. We see further upside in what should be a choppy / volatile year prior to a major downturn that is likely to last a number of years and correct ~25%.

Chart 5 – Dow Jones Index Monthly Chart

Chart 6 – Dow Jones Index Daily Chart

Chart 7 – S&P500 Index Monthly Chart

Chart 8 – S&P500 Index Daily Chart

Chart 9 – Russell 3000 Quarterly Chart

Chart 10 – NYSE Composite Index Monthly Chart

Chart 11 – Russell 2000 Index Monthly Chart

Chart 12 – US NASDAQ Index Monthly Chart

Chart 13 – The Canadian Composite Index Monthly Chart

European stock market Indices

European indices have broken out to the upside and technically look more bullish than US stocks from current levels with targets for the German DAX of +10% and Swiss SMI +15% - potentially fund managers that have been caught overweight cash are searching for value in previously weak markets.

Chart 14 – Euro STOXX 50 Index Monthly Chart

Chart 15 – UK FTSE Index Weekly Chart

Chart 16 – German DAX Index Monthly Chart

Chart 17 – Swiss SMI Index Quarterly Chart

Chart 18 – Spanish IBEX Index Monthly Chart

Asian & Emerging stock market indices

Asian indices remain bullish with the Hang Seng index looking poised to rally ~10% while the Nikkei closing over 17,500 is extremely bullish targeting ~22,000, again over 10% higher.

Chart 19 – Hang Seng Weekly Chart

Chart 20 – China Shanghai Composite Index Weekly Chart

Chart 21 – Japanese Nikkei 225 Index Monthly Chart

Chart 22 – Emerging Markets MSCI ETF Weekly Chart

Interest Rates & volatility

Short-term interest rates in the US have moved sharply higher since the Trump election win, the move has been assisted by the Fed forecasting 3 interest rate rises in 2017 plus strong wages growth fuelling inflation fears.

Beware, we believe this move higher for interest rates has only just commenced, however short-term we can see further consolidation at current levels e.g. Australian 3-year bonds have reached the psychological and technical 2% support area i.e. a 98.00 bond price.

Chart 23 – Australian 3-year bonds Weekly Chart

Chart 24– The US 10-year Interest Rate Monthly Chart

Chart 25 – The US 2-year Interest Rate Monthly Chart

Chart 26   Volatility (VIX) Index Weekly Chart

Australian stocks & sectors

The Australian stock market fell 0.5% last week which was a disappointing performance compared to its global piers. Short-term we can see a challenge / small break of the ASX200's 2017 highs..

Banking sector

The local banking sector is looking strong which makes sense as it becomes more profitable as interest rates rise. We potentially will add to our banking exposure into a decent pullback.

Chart 27 ASX200 Banking Index Monthly Chart

Chart 28 US S&P500 Banking Index Monthly Chart

Chart 29 – Commonwealth Bank (CBA) Quarterly Chart

Chart 30 – Commonwealth Bank (CBA) Daily Chart

Chart 31 – ANZ Bank (ANZ) Weekly Chart

Chart 32 – Westpac Bank (WBC) Weekly Chart

Chart 33 – National Australia Bank (NAB) Weekly Chart

Chart 34 – Bank of Queensland (BOQ) Monthly Chart

Chart 35 – Bendigo & Adelaide Bank (BEN) Monthly Chart

The Insurance  sector

We remain bullish and comfortably long SUN within the insurance sector. QBE has enjoyed a strong move with the $US and rising interest rates, a pullback / consolidation feels likely short-term.

Chart 36 – Suncorp Group (SUN) Monthly Chart

Chart 37 – Insurance Australia (IAG) Monthly Chart

Chart 38– QBE Insurance (QBE) Monthly Chart

Diversified Financials  sector

The Financials Index looks bullish, our target is over 10% higher, with CGF leading the way from current levels.

Chart 39 – ASX200 Financials Index Quarterly Chart

Chart 40 – Macquarie Group Ltd (MQG) Monthly Chart

Chart 41 – Platinum Asset Management (PTM) Daily Chart 

Chart 42 – Henderson Group (HGG) Weekly Chart 

Chart 43 – Challenger Ltd (CGF) Monthly Chart 

Chart 44 – IOOF Holdings (IFL) Monthly Chart 

Resources / Materials  sector

Copper remains in a negative downtrend long-term, even after the recent months fireworks, we are eventually targeting the 150 area.

Iron Ore has significantly exceeded our initial $US70/tonne target, technically we now remain neutral / negative after the "abc" target of ~$US80/tonne was recently achieved.

Heavyweights BHP and RIO look positioned for short-term strength whereas IGO, which was hammered on Friday, remains bearish targeting $3.50-$3.60.

Chart 45 – Copper Monthly Chart

Chart 46 – Iron Ore Monthly Chart

Chart 47 – BHP Billiton ADR ($US) Monthly Chart

Chart 48 – BHP Billiton (BHP) Weekly Chart

Chart 49 – RIO Tinto Ltd (RIO) Weekly Chart

Chart 50 – Fortescue Metals (FMG) Monthly Chart

Chart 51 – Independence Group (IGO) Weekly Chart

Energy  sector

Our target for Crude Oil of +$US60/barrel remains a real possibility after the OPEC decision and a close over the $US52/barrel area. Our main concern for the energy stocks is the overall optimism in the market. Last week we took an excellent profit on our Origin position and feel comfortable square the sector for now. 

Chart 52 – Crude Oil Monthly Chart

Chart 53 – Woodside Petroleum (WPL) Monthly Chart

Chart 54 – Origin Energy (ORG) Weekly Chart

Chart 55 – Oil Search (OSH) Weekly Chart

The Gold sector

Cracks appeared in gold recently as it fell hard in anticipation of rising interest rates in the US, our initial target was the $US1200/oz support area which is where gold is now hovering.

We believe there will be some excellent trading opportunities in 2017 within the gold sector.

Chart 56 – Gold Monthly Chart

Chart 57 – Newcrest Mining (NCM) Monthly Chart

Chart 58 – Regis Resources (RRL) Weekly Chart

Chart 59 – Barrick Gold Corp. (US) Monthly Chart

Chart 60 – Market Vectors Gold ETF Monthly Chart

The "yield play" stocks

We have been bearish bonds / bullish interest rates since mid-2016 and this view has not wavered. Hence we will only consider buying the "yield play" stocks as a trade when they are under severe pressure, as we did in late 2016 with Transurban (TCL) and Westfield (WFD).

Chart 61 – Sydney Airports (SYD) Monthly Chart

Chart 62 – Transurban Group (TCL) Monthly Chart

The Property sector

A confusing picture here short-term with the overall sector remaining mildly positive which theoretically contradicts our higher interest rates forecast. Hence we will avoid the sector in 2016 except WFD as an aggressive play if an opportunity arises under $9.

Chart 63 – Westfield Corp. (WFD) Monthly Chart

Chart 64 – Mirvac Group (MGR) Monthly Chart

Food & retailing  sector

While there are major signals within the sector at present we believe there are generally better places to be invested during 2017 but JBH does look very bullish at present.

Chart 65 – Wesfarmers Ltd (WES) Weekly Chart

Chart 66 – Woolworths Ltd (WOW) Weekly Chart

Chart 67– JB Hi-Fi (JBH) Monthly Chart

Chart 68– Harvey Norman (HVN) Monthly Chart

The internet / Technology sector

The Australian Tech. sector had a relatively tough 2016, we may have interest this year but currently only into decent weakness.

Chart 69 – Seek Ltd (SEK) Monthly Chart

Chart 70 – REA Group (REA) Monthly Chart

Chart 71 – Carsales.com (CAR) Monthly Chart

The Telco sector

The Telco sector endured a horrible 2016 falling ~20% after spending many years in the limelight. Changes within Broadband have made it extremely tough to value stocks within the sector which helped create the panic selling in both Vocus and TPG Telecom. We are not buyers of this sector but anticipate TPG will help drag the sector higher after its recent bounce.

Chart 72 – Telstra Corp. (TLS) Monthly Chart

Chart 73 – Vocus Communications (VOC) Weekly Chart

Chart 74 – TPG Telecom (TPM) Weekly Chart

The Healthcare sector

After being the perfect place to be invested since the GFC last year saw some wobbles within the sector as bond yields rose and excessive valuations were no longer tolerated by investors. While we see higher levels from the sector in years ahead we are 50-50 whether they can be achieved this year, or further weakness is likely first.

Chart 75– US S&P500 Healthcare sector Quarterly Chart

Chart 76– CSL Ltd (CSL) Monthly Chart

Chart 77 Ramsay Healthcare (RHC) Monthly Chart

Chart 78– Healthscope (HSO) Weekly Chart

Chart 79 - Ansell (ANN) Monthly Chart 

Chart 80 - Sirtex Medical (SRX) Weekly Chart 

Chart 81 - Cochlear Ltd (COH) Monthly Chart 

The Gaming / Tourism sector

This sector had a volatile an overall pretty average 2016. We like Star City (SGR) around $4.60 but are currently not enjoying the price action of Mantra (MTR). The current weakness of the $A should help the sector but the Dreamworld disaster still appears to be weighing on local tourism.

Chart 82 – Crown Resorts (CWN) Monthly Chart

Chart 83 – Star Entertainment (SGR) Weekly Chart

Chart 84 – Mantra Group (MTR) Daily Chart

The China speculative sector

Significant wealth has been destroyed in this area over recent times as crazy valuations came down to earth with a huge thud. Bellamy's return after suspense confirms are current view that it's all too hard!

Chart 85– Bellamy's (BAL) Daily Chart

Chart 86– Blackmore's (BKL) Monthly Chart

Australian Dollar (AUD) / FX Markets

The $A is trickly at present but we are comfortable with our eventual target of the ~65c region.

The $US remains strong after Donald Trump's victory as the market adjusts for higher US rates. We have been targeting ~105 but short-term feel the bullish $US view is becoming crowded and  a decent correction would not surprise.

Chart 87– Australian Dollar (AUD) / FX Monthly Chart

Chart 88– The $US Index Quarterly Chart

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 15/01/2017.  10.00AM.

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