Market Matters Report / Market Matters Weekend Report Sunday 20th November 2016

By Market Matters 20 November 16

Market Matters Weekend Report Sunday 20th November 2016

Market Matters Weekend Report Sunday 20th November 2016


Last week the ASX200 consolidated its recent gains drifting 0.2% but the fund managers were clearly continuing to switch within their portfolios following Donald Trump's surprise US election victory.

Winners - Banks gained even with ANZ and WBC trading ex-dividend, the Energy sector rallied 3.1%, most US$ earners rallied e.g. QBE +5.1% and Real Estate rallied strongly up 2%.

Losers - Supermarkets fell 0.7%, Healthcare fell 1.2% and profit taking took the Materials sector down 3.4%.

No great surprises in a week that saw continued belief that Donald Trump's intended aggressive fiscal spending will send the $US, interest rates and inflation higher - nobody currently cares about the US debt potentially spiralling upwards. The $US made multi-year highs on Friday and we can see this surprising to the upside. Remember after Ronald Reagan, who has similar policies to Donald Trump, gained power the $US rose an amazing 45% in just 4-years! It's had to imaging that Australian companies with good $US earnings will not enjoy a good Christmas rally, below are some beneficiaries of a strong $US showing their % US revenue:

Amcor (AMC) 40%, Ansell (ANN) 40%, Breville (BRG) 50%, Cochlear (COH) 40%, Computershare (CPU) 50%, CSL 40%, Henderson Group (HGG) 50%, James Hardie (JHX) 80%, Macquarie Group (MQG) ~30%, QBE 10%, Resmed (RMD) 55% and Westfield (WFD) 75%.

Obviously it's not all about how much revenue is in $US's as this must be balanced with risks around the company, a Trump fuelled trade war etc. We currently hold ANN, CSL, MQG, QBE and WFD - clearly we currently like $US exposure!

We have covered the $US's strength and its implications for gold in the "Standout Chart of the Week" but the inverse correlation of a strong $US on all commodity prices is the main reason we are not currently holding any resource stocks. When we look at the correlation between the $US and US stocks over the last 5-years while there are definitely some clear "time lags" a strong $US has moved in sync with a strong US stock market. Hence while a strong $US will ultimately hurt the US from a competitive standpoint short-term it holds no concern to us.

It should also be pointed out that when Ronald Regan came to power the Dow enjoyed a nice 6-year rally before the 1987 crash - we think it's different this time for Mr Trump as he's come to power after a 7-year bull market bull market as opposed to 15-years of sideways trading for US stocks. Our view as you know is the new President will help fuel a blow off top for stocks, prior to a +20% decline in 2017/8.

US S&P500 v $US Index Weekly Chart

We will find it very hard to become negative equities while the press continue to publish such extreme negative headlines, they are generally a good reverse indicator. While we know they are in the business of selling papers / site hits and saying that stocks look likely to gain 0.5-1% a month into 2017 will not get them traction. Today I see negativity everywhere e.g. " Bonds going bust a bad sign for expensive ASX" - Bloomberg and "Emerging markets shaken by Trump" - AFR. Nobody is saying fund managers sitting on record cash levels are missing this rally and they probably won't. If we see the press get positive stocks it may just help us pick the top to this bull market.

1. Last week the Russell 3000 followed the Dow to fresh all-time highs. We remain bullish short-term targeting ~8-10% further gains into 2017.

2. However, we remain bearish medium term targeting a +20% correction once US equities top out.

Hence while we are very long equities we plan to be sellers over the coming weeks /months. Investors should remember that picking "the top" is pure luck, we will be happy to leave a few % on the table rather than get caught in what we believe will be a savage decline.

Russell 3000 Quarterly Chart

We are now almost 2/3 of the way through November which is seasonally the weakest month for our banking sector, with CBA +4.7% this month is this year different courtesy of the US election, or do we need to look closer. We are simply focusing on CBA as it has not traded ex-dividend this month, since the GFC the swing low for CBA in November comes in on average ~23rd-25th of the month, prior to a strong rally into Christmas.

Hence considering that CBA has rallied $7.64 (11%) since the election upset our preferred scenario is CBA pulls back under $76 next week to create a springboard to rally into Christmas. Remembering how hard it is for the ASX200 to rally without the banks we anticipate a period of consolidation for the market overall prior to a strong December.

Commonwealth Bank (CBA) Daily Chart

Standout technical chart (s) of the week

The $US is one of the clear winners short-term from Donald Trump's election victory with his aggressive fiscal policies (spending) likely to lead to inflation and higher interest rates. A solid country like the US increasing interest rates is like a strong magnet for money / capital sending its currency higher.

On Friday the $US made fresh highs since September 2003 sending gold back down towards $US1200/oz, overall not a bad performance considering gold is denominated in $US and the 2015 low was way down at $US1046/oz.

The $US Index Quarterly Chart

The gold stocks ETF that we look at has corrected over 35% during the last 4-months and while we are not considering buying gold stocks while the $US looks so strong they are on our radar for 2017 when we think the $US has run its course.

Market Vectors Gold ETF Monthly Chart


Our view is that US stocks will rally ~8% over the coming months prior to a significant decline. Our favorite sectors locally into 2017 are the Financials (including banks), $US earners and Healthcare which is not yet listening to us. We are not keen on Europe at present as more disgruntled elections may see the end of the EU in our opinion.

What Matters this week

The ASX200's is set to open flat on Monday, short-term we can see further consolidation prior to gains into Christmas.

Potential Investing opportunities for the coming week(s)

Currently our favourite 3 stocks are MQG, WFD and QBE, all of which we purchased last week. For people that missed our alerts we would still be happy buyers into any weakness next week.

Potential Trading opportunities for the coming week

On the index front we especially like the Hang Seng and Japan over coming weeks.

For the aggressive traders we think the Telco's will bounce soon and probably hard, just like Crown and Star City did last week. Also, we would be buyers of CBA / banks into weakness over the next week, targeting a rally into Christmas.

* Watch out for trading alerts in the coming weeks.

Portfolio / Trade Holdings

The Market Matters Portfolio as of Fridays close is below:

We are currently holding 6% in cash after taking profit on half of our CBA position and buying Westfield (WFD), Transurban (TCL) and QBE Insurance (QBE).

Australian ASX200

The ASX200 consolidated its recent gains last week which is no surprise with its monthly range already satisfied, we remain mildly positive the local market with the banking sector leading the way.

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 win, beware we believe this move higher in rates has only just started.

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

The US stock market has surged since Donald Trump's victory with the Dow, Russell 2000 & Russell 3000 making fresh all-time highs. Eventually we expect all US indices to play catch and achieve fresh highs, once this has occurred we will be far more cautious stocks, our best "guess" at present is ~8% higher.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Russell 3000 Weekly Chart

Chart 10a – US S&P500 Index Monthly Chart

Chart 10b – US S&P500 Index Daily 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 remain tricky and neutral, they continued to struggle even after the Trump victory which sent most global indices soaring. The fundamental risks to the future of the EU are growing fast and we would advocate avoiding the region.

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 still looks poised to rally and the Nikkei has finally closed over 17,500 to look bullish. Conversely the Emerging Markets ETF has remained bearish.

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 had a rest last week, consolidating the gains since Donald Trump's victory. h during and after the US election. We are bullish into Christmas but a pullback next week would not surprise.

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 – Northern Star Resources (NST) Weekly 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) Weekly Chart

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

Chart 38a – AMP 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 46 – Telstra Corp. (TLS) Monthly Chart

Chart 47 – Vocus Communications (VOC) Weekly Chart

Chart 48 – TPG Telecom (TPM) Monthly 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 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 like many markets is trickly at present, we are comfortable with our eventual target of the ~65c region, short-term we were 50-50 around ongoing strength towards the 81c area but the Trump victory / $US strength has turned us towards a lower $A now.

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.

Chart 59a– Australian Dollar (AUD) Monthly Chart

Chart 59b– The $US Index Quarterly Chart


Cracks appeared 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 is being currently tested.

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

Our target for Crude Oil of +$US60/barrel this looks a tough call unless OPEC get organised agree on "something", it still needs to punch through $US52/barrel to look good.

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

Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart

Chart 63 – Iron Ore Monthly Chart


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 19/11/2016 5.25PM

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