Market Matters Report / Market Matters Weekend Report Sunday 18th June 2017

By Market Matters 18 June 17

Market Matters Weekend Report Sunday 18th June 2017

Market Matters Weekend Report Sunday 18th June 2017

The ASX200 ended a choppy week up 97-points / 1.7% aided by gains in the banks, financials and healthcare sectors. Since May 1st the local market has corrected 327-points / 5.5% while at the same time the Dow has rallied, closing at fresh all-time highs on Friday. The local market is currently in a very interesting yet tricky position. We pride ourselves at MM on delivering high conviction clear opinions / views but investors should always remember that markets trade sideways ~80% of the time hence at times our outlook, like now, is often neutral i.e. let the market tell us where it wants to go. While the market is still trading in the classic "sell in May and go away" seasonally weak period for stocks the internals of the Australian market are slowly improving which leads us to a short-term "sit on the fence" viewpoint. Let's consider 2 simple seasonality / statistics as we enter the second half of June:

1. The May / June seasonal weakness usually continues until the end of the month before the positive July effect kicks. Hence maintaining a reasonable cash balance as June matures makes perfect sense. July often kicks off with a bang as a number of large companies pay their dividends including ANZ, MQG, NAB and WBC with some of these funds obviously finding their way back into the market.

2. The ASX200's average gain in July, since the GFC, is an impressive 4.3% with it closing positive 7 out of the 8-years. Also, on those 7 bullish occasions the market closed out July around the highs of the month telling us early monthly strength usually follows through at this time of year.

We are currently holding 10% of our MM portfolio in cash which feels perfect just here, our general plan is to buy further weakness and continue to sell strength where appropriate i.e. our anticipated action plan for the next 6-12 months before we foresee a move more heavily into cash. With the Super changes kicking in at the end of this month we can see plenty of reason for this June to end stronger than usual but we will let the market shows its hand before we turn short-term bullish.

On a medium-term basis, the ASX200 is trading in a very clear Neutral Pattern with support 5582-5628 and resistance 5909-5956 - a Normal Distribution for those of you who enjoy maths. The local market has now traded in this 374-point range for 19-weeks so while a breakout should not surprise it could still easily take a little while longer.

ASX200 Weekly Chart

When we do turn our attention to the short-term pattern 2 important levels in the ASX200 look likely to determine the coming weeks direction:

1. A break above Fridays high 5795 should see a rapid move towards the highs of June, and in all likelihood beyond.

2. Conversely a break below 5750 by the ASX200 will imply strongly that Junes weakness has further to unfold before optimum buying for a July rally presents itself.

Saturday mornings close by the SPI futures was smack in middle of these 2 points of inflection.

Global Indices

The US stock market overall fought its way higher last week with the Dow closing up 0.5% on its all-time high. However, the "hot" tech index, the NASDAQ, again closed lower albeit by only 1%. While overall US indices are unclear at present we do have a definite short-term negative gut feel. The small cap Russell 2000 has generated a sell signal targeting a ~5% pullback which would be no great surprise following the 4.5% correction by the NASDAQ over the last 2 weeks.

The big story late last week from the US was Amazon buying Whole Foods Market for $US13.7bn catapulting the e-commerce goliath into 100's of physical stores. The competition got hammered with Wal-Mart falling over 7% at one stage, Woolworths and Wesfarmers will be interesting on Monday as the local markets paranoia with Amazon continues to evolve - we still see no reason to be currently dabbling in the retail space, its simply too hard.

US Russell 2000 (small cap) Index Weekly Chart

US NASDAQ Weekly Chart

European stocks remain bullish and on balance we think fresh highs for 2017 are not far away. Unfortunately, its only really the Australian market that has danced the "sell in May and go away" jig this year, hopefully we rally in July as usual regardless of the performance from other global indices.

Euro Stoxx 50 Weekly Chart

Banks and Financials

The local banking sector rallied last week gaining 1.6% but disappointingly closed well below its weekly highs. CBA stood out as the best performer gaining 3.6% over the 5-days, ongoing strength over $82 will lead us to become increasingly bullish the new "Big Australian".

We are considering increasing our exposure to WBC by another 2.5% if it challenges the June lows under $30.

Commonwealth Bank (CBA) weekly Chart

Westpac Bank (WBC) Weekly Chart


We remain bullish the resources space looking for the big cap miners to add to their gains from early May, Seasonally the resource stocks are due another poor week before rallying into mid-August but we feel the lows are already be in place for 2017. We keep looking at the very unusual divergence between the performance of the Emerging Markets and say BHP but the conclusion remains the same - we believe the Australian resource stocks will spring back into life in the near future.

BHP Billiton (BHP) v Emerging Markets Weekly Chart

Lastly, we bring subscribers attention back to Telstra (TLS), we remain keen sellers close to the $4.60 area. However, if the ASX200 does succumb to further weakness during the last few weeks of June we will be happy to switch TLS to a better quality stock if it has been sold off to attractive levels.

Telstra (TLS) Weekly Chart

Standout technical chart (s) of the week

Sirtex has had a horrible run of late, especially for a healthcare stock, falling over 70% in ~18-months. However, with the tax loss selling probably now behind us SRX generated an excellent risk / reward buy signal last week. The company has experienced some disappointing trial results of late but we now believe the share price has basically zero optimism built into it. Hence any mildly positive trial results, or an increase in dose sales which is a strong possibility given its low market penetration, is likely to result in the stock rising significantly higher very quickly.

We are buyers of SRX around $13 targeting $18 - note a break back under $12 may see us exit this volatile stock.

Sirtex Medical Ltd (SRX) Weekly Chart


No major changes, we continue to believe that US and local stocks can add to their recent gains into 2017, but short-term we are a little 50-50. Our current thoughts:

1. Take profit on TLS close to $4.60.

2. We ae comfortable holding 10% of the MM portfolio in cash in case the ASX200 follows its traditional June route lower over the next 2 weeks.

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 looking at 5750 and 5795 as the key levels for the week.

Potential Investing opportunities for the coming week(s)

1. Buy an additional 2 1/2% WBC under $30..

2. We are sellers of TLS ~$4.60.

3. We are buyers of SRX around $13 - this is an aggressive position.

* Watch out for trading alerts.

Potential Trading opportunities for the coming week

Also for the trader we can buy SRX around $13. targeting $18, using stops under $12, hence excellent risk / reward.

* Watch out for trading alerts.

Portfolio / Trade Holdings

The Market Matters Portfolio today is linked below. There has been no change to our holdings over the last week.

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 17/06/2017. 6.00PM.
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