Market Matters Report / Market Matters Weekend Report Sunday 30th April 2017

By Market Matters 30 April 17

Market Matters Weekend Report Sunday 30th April 2017

Market Matters Weekend Report Sunday 30th April 2017

The ASX200 traded in a pretty choppy manner through April but it finally ground out gains of 1%, primarily courtesy of the banks / financials. The obvious question is now do we "sell in May and go away" or will 2017 be different. We have increased our cash position in the MM portfolio to 21.5% because on balance we believe there is a greater probability of a correction over the next 6-8 weeks than a continuation of the Trump rally since the US election. This weekend heralds 100-days of Donald Trump as President of the US and there is no doubt that equity markets have embraced his win with the US S&P500 rallying over 15% since his surprise victory. There are a few important points to clarify at this point in time, all of which will be outlined in more detail later in the report:

1. If we get a decent correction over May / June, of say 5% by the US stock market, we currently intend to be buyers.

2. Hence we are not aggressively selling stocks at this point in time, just trimming our exposure looking for better entries into a few stocks in the weeks / months ahead.

3. We still believe the huge global bull market for equities which commenced in March 2009 is reaching maturity, thus we anticipate more activity within our portfolio than in recent years plus we are comfortable holding decent cash levels as we believe stocks will be significantly lower into 2018/9.

Today's report will focus on our banks who have been a huge driver of the ASX200's recent strength gaining an impressive 23% since the US election, including ignoring an almost 12% correction by the US banks. However we have to question whether this outperformance can be maintained in May / June, particularly after the majority trade ex-dividend.

ASX200 Annual Seasonal Chart

Locally the next 6-trading days look set to be all about the banks with ANZ reporting on Tuesday, NAB on Thursday and WBC the following Monday. The "big 4" banks are trading ~5% above their long-term average valuation implying the market is looking for good numbers which can be dangerous. On Friday we took a fabulous profit in CBA, now let's look back at how CBA has traded in May / June over the last 8-years since the bull market commenced:

1. The average correction in CBA has been 7.8%.

2. The maximum correction was 17.9% and the smallest 0.8%, followed by 3.3%.

3. Four times out of eight CBA has corrected over 8.5% in the May / June period - 50% of the time.

Considering that CBA has rallied 365%, not including dividends, since the March 2009 low these are impressive statistical reasons to sell CBA last week - remember we still hold ANZ, NAB and CYB. We are looking to re-enter CBA under $81, which is 7.3% below Fridays closing price, considering the above numbers this a very reasonable objective.

As we mentioned previously the local banks have rallied +4% over the last 9-weeks while the US banks corrected ~12%, this trend may be reversed as local influences come into play. However there is no doubt our local banks are enjoying pushing up interest rates even while bond yields tread water.

Commonwealth Bank (CBA) Monthly Chart

We remain bullish US equities very short-term ideally targeting ~21,500 for the Dow (+2.5%) prior to a decent 5% correction - May / June?

Hence if we see this short-term pop from US stocks over the coming 1-2 weeks we may consider some additional selling within our portfolio. US stocks are beginning to walk a dangerous tightrope with short-term influences clearly remaining bullish but the longer-term outlook looking very clouded, hence we will continue to keep our finger on the pulse day to day.

US Dow Jones Daily Chart

Longer-term we should not forget that we are targeting a ~25% correction, in the case of the Russell 3000 back under 1100 minimum.

US Russell 3000 Quarterly Chart

Equity markets are currently extremely complacent which is illustrated perfectly by the weekly VIX gauge, we are simply due "an event" which drives the VIX higher and share prices lower. The recent survey by Merrill Lynch of global fund managers showed their cash levels have fallen from 5.8% to 4.8%, still above the 10-year average of 4.5% but giving rise to an increased possibility of some pain if stocks correct.

We have no idea when and why but we are confident some fireworks will be lit at some stage in 2017!

On Friday markets ignored the lowest US GDP (economic growth) in 3-years, perhaps the catalyst for a stock market correction will be some relatively small news that becomes "the news that broke the camel's back", obviously time will tell. One market that should embrace weak GDP is gold and we expect a bounce in this sector early next week.

VIX Index (Fear gauge) Weekly Chart

Last week we took a good profit in Ansell leaving us holding zero exposure to the healthcare sector. Our departure from this very popular sector may be a touch premature but we believe another significant pullback awaits these high P/E stocks and better buying opportunities will be found in years to come.

Australian Healthcare sector Monthly Chart

Lastly moving onto the resources sector where we have increased our exposure over recent weeks. For the first time in years we are seeing some clear divergence between BHP and the Emerging Markets Index, we believe this will come back into line in the coming months with BHP rallying, hence our exposure to BHP, OZL and RIO.

Emerging Markets v BHP Weekly Chart

Standout technical chart (s) of the week

PTM was crunched over 6% on Friday following an announcement that they would be lowering fees to attract more FUM (funds under management) but if this fails they are looking at a 9% reduction in revenue. On one hand its good they are attempting to deal with issues but better performance would do the trick, perhaps the market would prefer to see some new faces in the investment team?

We are watching our position very closely after Fridays drop to test the lows of late 2016 - we are not considering averaging, only selling or holding.

Platinum Asset Management (PTM) Daily Chart

Summary

We continue to believe that US and local stocks can add to their recent gains into 2017, and potentially 2018. However ideally over the next 1-2 months we will see decent pullback in stocks, probably after one more small pop higher, our current thoughts:

1. Buy CBA under $81.

2. Buy RRL ~$3 and potentially higher.

3. Watch and evaluate PTM very closely.

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 marginally lower on Monday, we are now watching for signs of May / June seasonal weakness.

Potential Investing opportunities for the coming week(s)

We are watching PTM very closely.

Potential Trading opportunities for the coming week

We are buyers of BHP / RIO at current levels.

Portfolio / Trade Holdings

The Market Matters Portfolio as of Friday is below, notably we have increased our cash holding to 21.5%. We have been more active than usual over recent weeks/ months which is to expected as this major bull market matures, last week we took excellent profits in Ansell, Commonwealth Bank and Star City while increasing our exposure to resources by averaging BHP and purchasing OZ Minerals.

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-28th-april-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 29/04/2017. 8.00PM.
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