Market Matters Report / Market Matters Weekend Report Sunday 18th December 2016

By Market Matters 18 December 16

Market Matters Weekend Report Sunday 18th December 2016

Market Matters Weekend Report Sunday 18th December 2016

Overview

Last week the ASX200 consolidated recent gains and ended feeling rather "soggy" falling 0.5% for the week compared to a number of global markets that remained strong i.e. US Dow +0.4%, Japanese Nikkei +2.1%, UK FTSE +0.8% and German DAX +1.8%. However the performance of the local bourse was not too bad when considering some of the negative influences it experienced, especially in our time zone i.e. China -3.5%, Hong Kong -3.3% and Emerging Markets -2.8%. Also, corporate Australia unfortunately again did nothing to help the local market sentiment with Bellamys (BAL) going into suspense which feels very scary and Santos (STO) launching a $1.5bn capital raising which hit the local energy sector 1.5%. As Christmas and 2017 approaches we will continue to focus on the potential for a "Santa Claus" rally as our plan remains to continue selling into any short-term strength. Our "Standout Chart of the week" is the US S&P500 on a daily basis where we are targeting at least 2-3% further gains into January, hence supporting the potential for a local rally by stocks.

  1. The ASX200 has only traded in a 212-point range so far for December. However the average monthly range for 2016 is 304-points and last December it was 416-points. Hence statistically the ASX200 looks likely to test 5700 before we welcome in 2017.
  2. Seasonally the second half of December is the strongest time of the year, interestingly just where we kick off next week.

Hence overall we remain bullish the AX200 targeting ~5700 this month - a clear break back under 5500 is currently required to extinguish this outlook.

ASX200 Daily Chart

A number of major global indices are currently very bullish led by the Japanese Nikkei and German DAX. If we are correct and the Nikkei and DAX are going to both advance by well over 10% it strongly suggests that the ASX200 has more decent upside potential in the short-term. 

Our current target for the Nikkei is a test of the 22,000 region i.e. ~13% higher.

Japanese Nikkei Monthly Chart

Similarly, the German DAX looks very bullish with a target around 13,000, again well over 10% higher.

German DAX Monthly Chart

Last week the Australian stock market’s weakness was primarily focused in the resources space, a move we have been flagging recently. Some influential heavyweight stocks had some significant falls e.g.  Newcrest -11.6%, Santos -7.9%, BHP -3.8%, RIO -5.4% and FMG -5.7%. The important question is do we believe some / all of these stocks will continue to decline moving forward. Firstly let's consider the mining heavyweights BHP, RIO and FMG who have recently corrected 6%, 7% and 11% respectively

Our view is the short-term correction for these major miners is close to complete, ideally we would see a test lower early next week followed by a reversal back up as the "Santa" buying / lack of selling kicks in. All 3-stocks look fairly similar and in the chart shown for RIO we feel any spike under $59 will be short-lived.

Rio Tinto Ltd (RIO) Weekly Chart

The energy sector was sold down last week, courtesy of the Santos capital raising, which was discussed in Friday mornings report. However on Friday night the US energy sector gained 0.6% which should help support our local names on Monday. We remain bullish energy short-term and will be looking to take profit on our ORG position over $7, however per comments on Friday, our 1-2 year view is negative – is now a fairly crowded trade.

Origin Energy (ORG) Weekly Chart

Lastly gold which unfortunately we remain bearish medium-term even though it may bounce in coming few weeks. Our preferred scenario is gold continues to decline probably breaking the 2016 lows in 2017/8 which would potentially present some excellent buying opportunities.

Gold ETF Monthly Chart

Hence overall if the major resource stocks are close to a shorter term inflection point and banks maintain their recent strength, then continued strength for the ASX200 into 2017 feels likely. Also, for good measure there was strong performances from the beaten up Real Estate (+1.4%) and Utilities sectors (1.2%) on Friday night in the US which again should support the local market - the "yield play" has been battered locally and a quick 5% rally is easy to imagine.

Standout technical chart (s) of the week

Last week US stocks digested the Fed's forecast of 3, not 2, interest rate hikes in 2017 extremely well -  remember a market the does not fall on bad news is a strong market. The S&P500 has simply consolidated its recent gains and ended the week basically unchanged. Short-term the market remains bullish as we enter an extremely strong fortnight from a seasonal perspective, we currently expect the S&P500 to challenge the 2300 area in coming weeks i.e. 2-3% higher.

US S&P500 Daily Chart

Summary

  • Our view remains that US and local stocks will rally over the coming two weeks prior to a decline in the first quarter of 2017. We intend to continue increasing our cash holdings towards the end of this month.
  • Our favorite sectors locally into 2017 are the Financials (including banks), $US earners and Healthcare which still has not yet listened to us, plus we can see a sharp snap back in the battered "yield play" of ~5-8%.

What Matters this week

The ASX200's is set to open up 10-points on Monday, short-term we can see a little more consolidation above the 5500 area, prior to a "Santa Claus" rally.

Potential Investing opportunities for the coming week(s)

We are now holding 16% in cash and are wearing our sellers hat, plus we also have bought VTG as a shorter term position.

Potential Trading opportunities for the coming week

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

For the index traders we think the market will again rally into the New Year and positions can be initiated into any weakness early next week. 

* Watch out for trading alerts*

Portfolio / Trade Holdings

The Market Matters Portfolio as of the 17th December is below:

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-16th-december-2016/

We are currently holding 16% in cash after taking profit in Ansell (ANN) last week.

Australian ASX200

The ASX200 corrected 0.5% last week but a break above the year's high of 5611 remains a strong possibility.

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

 

Chart 3 – ASX200 Daily Chart

Chart 4 ASX200 Banking Index Monthly Chart

Chart 5 US S&P500 Banking Index Monthly Chart

Chart 6  Volatility (VIX) Index Weekly Chart

 

Interest Rates

Short-term interest rates in the US have moved sharply higher since the Trump election win and this move was assisted last week by the Fed forecasting 3 interest rate rises in 2017. Beware we believe this move higher for interest rates has only just commenced. However short-term we can see some consolidation at current levels e.g. Australian 3-year bonds have reached the psychological and technical 2% support area i.e. 98.00 bond price.

Chart 7a – Australian 3-year bonds Weekly Chart

Chart 7b – The US 10-year Interest Rate Monthly Chart

Chart 7c – The US 2-year Interest Rate Monthly Chart

American Equities

US stocks have surged well over 10% since Donald Trump's victory with the Dow, Russell 2000, Russell 3000 and now finally NYSE Composite making fresh all-time highs. We are becoming more cautious stocks, our best "guess" at present is ~10% higher. Seasonally US indices should rally into 2017 - very similar to the local ASX200.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Russell 3000 Quarterly Chart

Chart 10a – US S&P500 Index Monthly Chart

Chart 10b – US S&P500 Index Weekly Chart

Chart 10c – US S&P500 Healthcare Index Quarterly Chart

Chart 11 – NYSE Composite Index Monthly Chart

Chart 12 – Russell 2000 Index Monthly Chart

Chart 13 – US NASDAQ Index Monthly Chart

Chart 14 – The Canadian Composite Index Monthly Chart

European Indices

European indices broke out to the upside 2 weeks ago and continue to look bullish e.g. the DAX is targeting ~13,000 / 13% higher while it holds over 10,800.

Chart 15 – Euro Stoxx 50 Index Monthly Chart

Chart 16 – UK FTSE Index Weekly Chart

Chart 17 – Spanish IBEX Index Monthly Chart

Chart 18 – German DAX Index Monthly Chart

Asian & Emerging Markets Indices

The Hang Seng index remains strong looking poised to rally 10% while the Nikkei closing over 17,500 is extremely bullish targeting ~22,000 i.e. 13% higher after another strong performance last week.

Chart 19 – Hang Seng Weekly Chart

 

Chart 20 – China Shanghai Composite Index Weekly Chart

Chart 21a – Emerging Markets MSCI ETF Weekly Chart

Chart 22 – Japanese Nikkei 225 Index Monthly Chart

Australian Stocks

The Australian stock market consolidated recent gains last week, seasonally we should see another few weeks of strength into 2017.

Chart 23 – BHP Billiton ADR ($US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Weekly Chart

Chart 25a – Woodside Petroleum (WPL) Monthly Chart

Chart 25b – Origin Energy (ORG) Weekly Chart

Chart 25c – Oil Search (OSH) Weekly Chart

Chart 26 – RIO Tinto Ltd (RIO) Weekly Chart

Chart 27 – Fortescue Metals (FMG) Monthly Chart

Chart 27b – Independence Group (IGO) Weekly Chart

Chart 28 – Newcrest Mining (NCM) Monthly Chart

Chart 29 – Regis Resources (RRL) Weekly Chart

Chart 30 – Barrick Gold (US) Monthly Chart

Chart 31 – Market Vectors Gold ETF Monthly Chart

Chart 32a – Commonwealth Bank (CBA) Quarterly Chart

Chart 32b – Commonwealth Bank (CBA) Daily Chart

Chart 33 – ANZ Bank (ANZ) Weekly Chart

Chart 34 – Westpac Bank (WBC) Daily Chart

Chart 35 – National Australia Bank (NAB) Weekly Chart

Chart 36 – Macquarie Group (MQG) Monthly Chart

Chart 37a – Bank of Queensland (BOQ) Monthly Chart

Chart 37b – Bendigo & Adelaide Bank (BEN) Monthly Chart

Chart 38aAMP Ltd (AMP) Monthly Chart 

Chart 38b – Henderson Group (HGG) Weekly Chart 

Chart 39a – Sydney Airports (SYD) Monthly Chart

Chart 39b – Transurban Group (TCL) Monthly Chart

Chart 39c – Mantra Group (MTR) Daily Chart

Chart 40 – Suncorp Group (SUN) Monthly Chart

Chart 41 – Insurance Australia (IAG) Monthly Chart

Chart 42 – QBE Insurance (QBE) Monthly Chart

Chart 43 – Wesfarmers Ltd (WES) Weekly Chart

Chart 44 – Woolworths Ltd (WOW) Weekly Chart

Chart 45a – Seek Ltd (SEK) Monthly Chart

Chart 45b – REA Group (REA) Monthly Chart

Chart 45c – iSentia Group (ISD) Daily Chart

Chart 46 – Telstra Corp. (TLS) Monthly Chart

Chart 47 – Vocus Communications (VOC) Weekly Chart

Chart 48 – TPG Telecom (TPM) Weekly Chart

Chart 49 – Westfield Corp. (WFD) Monthly Chart

Chart 50– CSL Ltd (CSL) Monthly Chart

Chart 51 Ramsay Healthcare (RHC) Monthly Chart

Chart 52– Healthscope (HSO) Weekly Chart

Chart 53 - Ansell (ANN) Monthly Chart 

Chart 53 - Sirtex Medical (SRX) Weekly Chart 

Chart 54 – Amcor Ltd (AMC) Monthly Chart

Chart 55a – Crown Resorts (CWN) Monthly Chart

Chart 55b – Star Entertainment (SGR) Weekly Chart

Chart 56– Bellamys (BAL) Weekly Chart

Chart 56b– Blackmore's (BKL) Monthly Chart

Chart 57– JB Hi-Fi (JBH) Monthly Chart

Chart 58– Harvey Norman (HVN) Monthly Chart

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

The $US is looking very strong after Donald Trump's victory as the market adjusts for higher US rates. We are targeting ~105 minimum but surprises are likely to be on the upside short-term i.e. with the trend.

Chart 59a– Australian Dollar (AUD) Monthly Chart

Chart 59b– The $US Index Quarterly Chart

 

Commodities

Large cracks have continued to appear in gold recently as its fallen hard in anticipation of rising interest rates in the US, our initial target was the $US1200/oz support area which has now been broken. We still think it's best to be an observer for now and a test of $US1,000/oz would not surprise.

Copper remains in a negative downtrend, even after the last few weeks fireworks, on a longer-term basis we are targeting the 150 area.

Our target for Crude Oil of +$US60/barrel looks a strong possibility after the OPEC decision, it still needs to decisively punch through the $US52/barrel area to look good.

Iron Ore achieved our initial +$US70/tonne target, technically we now remain neutral / negative after the "abc" target of ~$US80/tonne was achieved last month.

Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart

Chart 63 – Iron Ore Monthly 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 18/12/2016.  9:00AM.

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