Market Matters Report / Market Matters Weekend Report Sunday 19th March 2017

By Market Matters 19 March 17

Market Matters Weekend Report Sunday 19th March 2017

Market Matters Weekend Report Sunday 19th March 2017

Last week the ASX200 drifted 0.4% higher as the resurgence of the resource stocks outweighed some profit taking in the local banks. Having increased our stock market exposure to a whopping 94% on Monday, after our latest purchase of RIO ~$58.50, we implemented some anticipated selling on Friday and increased our cash position to 19%. Remember at MM we believe flexibility is vital to long-term successful investing and clearly with only 6% in cash ours was limited. Firstly let's look at the stocks we sold and recap our reasoning behind the action:

1. Macquarie Bank (MQG) ~$88.70 - We wanted to reduce our heavily overweight Financials / Banks position with MQG our preferred choice due to its large $US exposure. Also, we believe there is very good chance banks will correct over coming weeks - see later in the report.

2. CSL Ltd (CSL) ~$123.50 - We took a nice profit on CSL due to its $US exposure and current high valuation. We believe we’ll be able buy back into CSL under $100 in the next 12/8-months - it was under $92 in December.

3. Altium (ALU) ~$7.50 - We took a small loss in ALU after the markets disappointment with its result 4 weeks ago. Technically the stock may grind higher but a 7.5% bounce was good enough for us to cut our losses.

4. TPG Telecom (TPM) ~$6.60 - We closed this "trading position" with a very small profit after giving it plenty of time to perform. The company will announce their half yearly results on Tuesday and the upcoming auction for spectrum early April creates a higher level of short term risk in the stock, it may easily go higher but we are happily square for now.

Statistically while 5675 holds for the ASX200 Australian stocks should be strong over the next 2-6 weeks but there are two things that may hinder this outlook, at least until April:

1. Seasonally March is usually a month where things drift, plus our banks have already satisfied their statistical upside projections for March.

2. US banks look set for a reasonable pull back which is likely to cap our banks at least for a few weeks - see later.

ASX200 Annual Seasonality Chart


If there one thing to get emails flooding into MM it's selling shares, especially popular stocks like CSL. Our goal at MM is simply to make the best possible return on both our money and for our investors / subscribers while adhering to some sensible risk /reward parameters. We believe the one major area that most retail investors need help is when to sell shares, both for a profit and a loss. Let's look at 6 recent sales by MM, from our past 30 transactions (not just sales) to avoid "cherry picking" and importantly what followed:

1. We sold NCM at $23.40 in late February, the stock then fell 10% when we then purchased EVN and RRL to actually increase our overall gold sector exposure.

2. We sold MTR for a painful 10% loss on the 18th of January, the stock then fell another 12%. Note quick reactors to our sell alert would have only lost ~8%.

3. We took a great profit in Origin Energy on the 12th of January around $7, a few weeks later the stock then fell over 11% to $6.21.

4. We sold Vita Group at $3.40, taking a 28% profit, in early January before the stock fell over 16%. The stock has since bounced but it remains at our exit level.

5. We sold Westfield (WFD) in early January for a 12% profit at $9.42, the stock closed on Friday 8% below our sale price having traded much lower earlier last week.

6. We sold Ansell (ANN) for a 14% profit at $25.07 on 12th December, we subsequently then bought the stock back at $21.02 in late February, we still hold ANN today.

Investors often forget that selling is essentially 50% of investing and something that should be considered as equally as buying. Also when considering all our sales over the years clearly some stocks may now be higher, the real "added value" is only fully appreciated when evaluating the stocks that have been subsequently been purchased. We reiterate at this junction that MM is not a trading company but an active investor, the stock market is 8-years into a rapidly maturing bull market, we believe this is not the time to buy and hold for the optimum returns.

NB We are not trying to show how good we are but how important selling is for investors, remember our biggest blemish of the last year remains Vocus (VOC) a stock we failed to sell quickly enough!

Emerging Markets / ASX200

We have mentioned a few times recently that we are bullish the Emerging Markets, expecting them to rally strongly in 2017. Another of our forecasts that the ASX200 would outperform US stocks in 2017, for the first time in 11 years, is still lagging with the ASX200 +2.4% while the US S&P500 is +6.2%. As we move towards the end of Q1 for the year we still like our view but clearly it has some catching up to perform.

The correlation between the Emerging Markets and Australian stocks is excellent and if we are correct and the EEM will rally 15% in 2017 things should look rosy locally.

NB The Emerging Markets Index is dominated by China 26.98% South Korea 14.73% Taiwan 12.33% India 8.45% and Brazil 8.19%.

ASX200 v Emerging Markets Chart

US and Australian Banks

After their 39% rally since Donald Trump's victory we are now short term bearish US banks targeting a 6-7% correction, back to the levels of late January. If this unfolds into early April the following two scenarios will come into play:

1. Australian banks will struggle and our exit from Macquarie Bank (MQG) should prove prudent short term.

2. We may actually get a decent pullback in the local banks for a buying opportunity into April and May's dividend season. Our preference is currently NAB around the $30 region, while this is ~$2 below Fridays close the stock did fall $1.38 from its high last week alone. MM is currently buyers of NAB ~$30.

Weakness in US banks would tie in with our macro views that US bond yields should correct some of their recent gains and the $US is bearish.

US S&P500 Banking Index Weekly Chart

National Australia Bank (NAB) Weekly Chart

Lastly a quick update on our position in Ramsay Healthcare which recently has become very volatile as fund managers attempt to second guess a potential sell down from the late Paul Ramsey's estate. We do like the company but expect further volatility short term, our position is simple:

We are long RHC before its 53c dividend from ~$69. We will take a small profit over $70 and / or average under $60, the trading range we expect for the remainder of 2017.

Ramsay Healthcare (RHC) Weekly Chart

Standout technical chart (s) of the week

We often mention that the Tech. NASDAQ Index is one of the leading indicators for global equities, no great surprise considering its made of leading stocks like APPLE, Amazon, Facebook and Google. Importantly to us the chart is clear and definitely short /medium term bullish:

1. We expect the NASDAQ to continue its rally over the next few weeks/months prior to a ~5% correction.

2. We can see the 6000 area being tested in 2017 and from this chart pattern our preferred time for a major top would actually be in 2018, not this year.

3. We do eventually target a correction back to the 4000 area, a ~30% correction.

US NASDAQ Monthly Chart


We continue to believe that US and local stocks can add to recent gains well into 2017, and potentially 2018. Ideally over coming weeks the banking sector will correct and the resources will continue with some of the heavy lifting for the ASX200.

We believe the ASX200 will break over 6000 in 2017.

What Matters this week

The ASX200's is set to open down 15-points on Monday, short-term we believe a clear break of the 5800 area for the market, when it occurs, will lead to a quick rally to 5900 and probably beyond. However, if the banking sector is going to consolidate recent gains this is becoming hard to imagine in March.

Potential Investing opportunities for the coming week(s)

We are looking to buy NAB around $30 and RHC under $60.

Potential Trading opportunities for the coming week

Last week we closed out our TPM trading position for a very small profit. This week we will explore trading opportunities on the short side in the banks.

Portfolio / Trade Holdings

The Market Matters Portfolio as of the 17th March is below. Please note, a link to the portfolio is always available at the top of each email 

Last week we were active in the market again following our plan to accumulate RIO and increase our cash position to 19% by selling ALU, TPM, CSL and MQG.

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 18/03/2017. 1.00PM.
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