Market Matters Report / Market Matters Weekend Report Sunday 2nd April 2017

By Market Matters 02 April 17

Market Matters Weekend Report Sunday 2nd April 2017

Market Matters Weekend Report Sunday 2nd April 2017

The ASX200 enjoyed some excellent gains last week, reaching fresh highs since May 2015, led by the Banking Sector which gained 3.8%. We have now entered April, the seasonally strongest month of the year, and MM is wearing its sellers hat. We are currently relaxed about Fridays surprising fall as it was both the end of the month and quarter, a classic time for "shenanigans" by fund managers. We would postulate that if the professionals were particularly long the local market its unlikely they would have sold stocks down over the last few hours on Friday, including an aggressive ~25-points in the last 30-minutes. Monday will be interesting to see if we see some covering of this Friday pm selling, which was primarily concentrated in the futures. We will maintain a positive bias over coming weeks assuming 5810 can hold but intend to sell into any strength, ideally between 5950 and 6000 - remember this week alone over $7bn in dividends will be received by investors.

Today we are going to focus on our medium term view for global stocks which will allow us to identify which stocks / sectors we are most likely to sell within the MM portfolio over coming weeks.

ASX200 Daily Chart

Let's look at the results table of the first quarter of 2017 for some major global indices:

1. Australian ASX200 +3.5%

2. US S&P500 +5.5%

3. UK FTSE +2.5%

4. Eurostoxx 50 +6.4%

5. Japanese Nikkei -1.1%

6. Hong Kong's Hang Seng +9.6%

Unfortunately after 3-months the Australian market is only beating Japan and the UK but we stick with our view that the ASX200 will outperform the S&P500 in 2017 for the first time in 11-years! We believe that US stocks are overvalued on a global scale, a view that was excellently illustrated by Charlie Aitken on Switzer this week when he quoted "US equities now represent 54% of the MSCI World Equity Index but the US GDP only represents 16% of the worlds GDP. Obviously this argument can only go so far as people like the stability of the $US and see growth in the Tech. NASDAQ stocks but beware US stocks are now trading on their highest valuations since the 1999 Tech bubble which burst in a very ugly manner. We remain bullish US equities over coming weeks but a decent pullback feels very close at hand.

Our favourite indices over coming weeks / months are the Europeans led by the Eurostoxx which outperformed the US in Q1, and especially in March. Hence our planned selling will not be in European facing stocks like Henderson (HGG) - we have already sold most of our US facing holdings but Ansell (ANN) does generate about 40% of its revenue from the US.

Eurostoxx 50 Weekly Chart

As most of you know we often say the NASDAQ is the leader amongst indices and last week the NASDAQ again made fresh all-time highs on Friday night. Our short-term target for the NASDAQ is around 5575 / 2.5-3% higher - i.e. not a great deal higher. The technical path we believe the NASDAQ is following implies it could easily reach the 6000 area at some stage i.e. over 10% higher.

US NASDAQ Index Weekly Chart

The Russell 2000 is an index we usually follow from a longer timeframe perspective  but on a weekly basis, similar to the NASDAQ, its targeting fresh highs, around 4% above Fridays gains.

US Russell 2000 Index Weekly Chart

Over the coming weeks we remain mildly bullish US banks targeting fresh highs for 2017 i.e. 8-10% higher. However it should be remembered that there is the possibility of a substantial pull back looming fast. Hence we are likely to at least reduce our Australian banking exposure of ANZ, CBA and NAB into any strength this month. Considering our preference for European Indices at this point in time CYB ( the spin off from NAB) is looking relatively more attractive by the week.

US S&P500 Banking Index Weekly Chart

The US Healthcare Sector has enjoyed 2017 to-date having rallied almost 8% since December's close. We remain bullish but our target is only 5% higher hence "not a lot of meat is left in this Sandwich". We currently hold 3 local healthcare stocks:

1. Primary Healthcare (PRY) $3.57 - We recently allocated 3% of our portfolio at $3.40 targeting the $5 area.

2. Ramsay Healthcare (RHC) $69.89 - In late February we allocated 4% into RHC around $68.50, taking the recent dividend into account. Our ideal target area is now only $71-72, which would now be a small win.

3. Ansell (ANN) $24.07 - In late February we allocated 4% into ANN around $21. Our target remains ~$26.

US S&P500 Healthcare Sector Quarterly Chart

The resources need to find some legs in April for the 6000 area to be a feasible target for the ASX200. Technically when we look at BHP on the US ADR market the current correction may dip under the $US36 area but we should then see some solid buying, time will obviously tell. We bought this year's decent sell off in BHP and RIO but so far only the energy sector has got back up from the canvas but resources can turn very sharply often when least expected.

We are watching Oz Minerals (OZL) under $8 as a possible trade - not an investment when we are wearing our sellers hat and already own both BHP and RIO.

BHP $US  / ADR's Monthly Chart

Going back to the Energy Sector / Woodside Petroleum (WPL) looks bullish for the first time in simply ages, while it can hold over $29.90, an impressive / amazing achievement considering the pullback in crude oil.

Woodside Petroleum (WPL) Monthly Chart

Standout technical chart (s) of the week

The "yield-play" stocks have been creeping higher as US bond yields retreat, perhaps Trump will struggle over the months ahead to convince markets that he will create economic growth? Transurban (TCL) in particular looks very bullish, with the next 40c pull back looking like a buy. If interest rates are not going to rise as fast as many believe over coming years then bank stocks will struggle, gold stocks should be happy and the "yield play" would continue to recover - remain open-minded in terms of trends and positioning as this is a very fluid market!

Sydney Airports (SYD) Monthly Chart

Transurban (TCL) Monthly Chart

Summary

We continue to believe that US and local stocks can add to recent gains into 2017, and potentially 2018. Ideally over coming weeks the banking sector will continue to rally after its recent correction as the seasonally strong April arrives.  There are three Stocks in particular within the MM portfolio that we are assessing closely with a view to increasing our 12% cash holding:

RHC $71-72, ANN ~$26 and CBA while the other holdings will obviously be constantly reviewed - if we sell these 3 stocks alone our cash position will rise over 25%.

On the buy side we are watching TCL and WPL as investments, two stocks we did not believe we would be considering earlier in 2017, plus OZL is on our radar as a trade.

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 5-10 points on Monday, there will be many traders watching to see if Monday sees Fridays aggressive selling reversed.

Potential Investing opportunities for the coming week(s)

We are considering buying Woodside (WPL) plus Transurban (TCL) if it corrects 40-50c. Overall in the coming weeks we plan to increase our cash position substantially above its current 12% level.

Potential Trading opportunities for the coming week

We are watching OZL very closely under $8.

As detailed in the report we are bullish the ASX200 while it can hold the 5810 area, hence weakness early next week will offer some good risk / reward.

Portfolio / Trade Holdings

The Market Matters Portfolio as of Friday 31st March

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-31st-march-2017/

Weekend report Charts / Chart Pack

The Market Matters Weekend report charts can be found below:

https://www.marketmatters.com.au/chart-pack/

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 01/04/2017. 5.00PM.
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