Market Matters Report / Market Matters Weekend Report Sunday 23rd July 2017

By Market Matters 23 July 17

Market Matters Weekend Report Sunday 23rd July 2017

Market Matters Weekend Report Sunday 23rd June 2017

The ASX200 ended yet another choppy week closing down 43-points / 0.7% with losses in the financial, insurance and resources sectors unfortunately more than offsetting gains in our “big 4” banks. Our “Gut Feel” which was smack on point with the banks last week is rapidly turning bearish with it becoming hard not to see a 4% pullback towards the 5500 support area for the ASX200 over the coming 1-2 months. Seasonally local stocks usually rally into the end of July prior to struggling in August and September but this year we definitely appear to have the “glass half empty” feel as we continue to ignore good news from a number of different areas:

  1. Since the 1st of May the ASX200 has fallen 234-points, or -3.9%.
  2. Conversely over the same period the Dow is up +3.2%, Hang Seng +8.5%, Nikkei +4.1% and Emerging Markets +8.3%.

Currently our market is simply embracing any bad news and ignoring the good stuff e.g. on Friday night on SYCOM our SPI (ASX200 futures) fell 25-points, following Europe lower while ignoring an extremely quiet night on Wall Street. As we often say “a market that fails to rally on good news is usually bearish”. Historically the ASX200 is far more correlated to the Emerging markets than Europe but this has definitely not been the case in 2017, since May 1st the Euro Stoxx is down 3%, only a slightly better performance than the Australian market. However when we look at both of their performances since the start of the calendar year the ASX200 is only up 1% while the Euro Stoxx has gained a solid 4.9% and the Dow well over 9%, frustratingly you have to look very hard to find a market we have outperformed in 2017. As we’ve said a few times in the reports this week the best our market is providing is some sector rotation but with a US correction feeling close at hand it’s very hard to feel optimistic short-term.

ASX200 Seasonality Chart

Since the 18th of May the ASX200 has traded in a very tight range between 5629 and 5836, Its time to look at some simple statistics when we assess the risk / reward over the next few months.

  1. So far this month we have traded in an extremely tight range of 127-points, between 5665 and 5792.
  2. The smallest monthly range since mid-2014 is 160-points hence a break of 5665 in coming days should at the very least see a test of the major 5629 daily support.
  3. Technical traders can sell a break of 5629 using stops over 5660.
  4. The first 2 quarters of 2017 have enjoyed an average range of 319 and 327-points respectively.
  5. Hence a break of 5665 will statistically flag a test of the important 5500 area – The DOT Theory.

MM is still looking to build its cash position from the healthy 18.5% level, a break of 5665 will generate an important index sell signal.

ASX200 Daily Chart

In the medium-term the ASX200 has traded between 5582 and 5956, going way back to late December 2016.

  1. The ASX200 currently has an “abc” target on the downside of ~5500 area.
  2. Technically an excellent buy signal is generated by a break under 5582 followed by a close back over 5630.
  3. MM is planning to significantly increase our market exposure in the 5500 area.

ASX200 Weekly Chart

Global Indices

The US stock market has played along with our forecast for the vast majority of 2016/7, if this continues a rocky road is just around the corner.

We can see more gains into August but a 6-7% correction does look close at hand.

US NASDAQ Weekly Chart

European stocks have corrected ~3%, similar to the ASX200, since early May but the indices are now approaching decent support. The question we are asking ourselves is if the NASDAQ corrects 6-7% in the next 1-2 months how will the ASX200 / Europe hold up?

Euro Stoxx 50 Weekly Chart

Banks and Financials

The “big 4” banks enjoyed the news from APRA last week taking the sector up almost 5% over the last month, we believe any weakness will be bought by the underweight fund managers. Both interestingly and surprisingly we have 2 very different signals from the Bank of Queensland (BOQ) and Macquarie Group (MQG):

1 BOQ – Technically we have become bullish on BOQ while it can hold over $11.40.

2 Macquarie Group (MQG) – We remain bearish with an initial target close to $81, or 5% lower.

Bank of Queensland Monthly Chart

Macquarie Group (MQG) Monthly Chart

Resources

We remain bullish the resources space looking for the big cap miners to eventually add to their gains from early May, 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 eventually spring back into life later in 2017.

BHP Billiton (BHP) v Emerging Markets Weekly Chart

Lastly, we bring subscribers attention back to Telstra (TLS), the stock we are questioned about the most, sadly because it continues to fall. We remain bearish TLS targeting ~$3.70, almost 10% lower.

Telstra (TLS) Weekly Chart

Standout technical chart (s) of the week

From a volatility perspective investors are becoming extremely complacent with the VIX (fear gauge) basically trading at its all-time low. This sends two messages to us:

  1. Be cautious a decent pullback feels a strong possibility.
  2. Traders may want to buy some “cheap” puts in anticipation of fireworks on the horizon.

The Fear gauge / VIX Weekly Chart

Investing opportunities for the coming week(s)

Look to increase our cash position so we can buy the anticipated pullback towards 5500.

Trading Opportunities on our radar

For the trader sell MQG and buy BOQ as a “pairs” trade either via stock, or options.

Summary

Unfortunately we are slowly becoming bearish targeting a 4-5% correction back towards the 5500 support area.

Ideally MM will look to increase its cash position further, towards 25%, so we can be aggressive buyers if this correction does unfold.

Our Holdings

Our positions as of Friday. All past activity can also be viewed on the website through this link

Weekend Chart Pack

The weekend report includes a vast number of charts covering both domestic and international markets, including stock, indices, interest rates, currencies, sectors and more. This is the engine room of our weekend analysis. We encourage subscribers to utilise this resource which is available by clicking below.

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 22/07/2017. 4.00PM.
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