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

By Market Matters 30 July 17

Market Matters Weekend Report Sunday 30th July 2017

Market Matters Weekend Report Sunday 30th June 2017

The ASX200 finished yet another extremely choppy week down -0.35% with most sectors contributing to the losses except the resources and the embattled retailers, who actually managed a 5.2% gain! The market was extremely strong on Tuesday and Wednesday only to get hammered on Friday with huge SPI led selling, which took the index down 92-points at its worst.  So here we are with one trading day of July remaining and the index is down a meagre -0.3% and the month looks destined to have experienced the tightest trading range since mid-2014. The market has tried hard on a number of occasions to break above 5836 resistance and below 5629 support, which has bound the market since the 18th of May - importantly a breakout for Australian stocks is now well overdue from a statistical perspective. Firstly let’s look at the “trading patterns” as we enter August: 

  1. Technical traders can sell a break of 5629 using stops over 5660.
  2. The first 2 quarters of 2017 have enjoyed an average range of 319 and 327-points respectively.
  3. Hence a break of 5650 will statistically flag a test of the important 5500 area in the next 2 months – The DOT Theory.
  4. Conversely a break of 5840 can be bought with stops under 5800.

MM is comfortable with our portfolio’s large 23.5% cash level as on balance we still expect to see a test of ~5500 in August / September.

ASX200 Daily Chart

As we said last week our “Gut Feel” has turned bearish with it becoming hard not to see a 3-4% pullback towards the 5500 support area by the ASX200 over the coming 1-2 months. Seasonally local stocks usually struggle in August and September plus we are getting sell signals from the US which has soared since Donald Trump’s election victory, not a perfect combination for the bulls. Let’s look at the actual number for August / September over the 8-years since the GFC: 

  1. Unfortunately the weakness over the August / September period is more random than is often the case when we delve into the fine print of the numbers for our market.
  2. August did not correct meaningfully once in the 8-years while producing ~3% pullbacks four times, a 6% once plus over 10% twice.
  3. Noticeably 5 of these corrections commenced early in the month of August.
  4. September was bullish 3 times while producing a correction of over 5% four times and around 3% once.

On their own these numbers are net negative but not with the degree of clarity that we usually see in say May and December. However when we consider the position of the market they become more interesting. We are targeting a 200-point correction towards the 5500 area i.e. 3.5% in August / September. A break of the major 5629 support that has held for the last 8-weeks is likely to see a quick spike down to our targeted area, remember over 60% of the time since the GFC we have seen decent weakness in early August. Hence on balance, considering how long the local market has traded sideways we believe a sharp move lower in the next few weeks is a high probability scenario which would provide an excellent risk / reward buying opportunity – that’s our current plan in a nutshell.

ASX200 Seasonality Chart

Global Indices

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

We still expect a ~7% correction by the NASDAQ and 5% from the Dow in the near future.

US NASDAQ Weekly Chart

European stocks have corrected since June in a similar manner to the ASX200. The UK FTSE looks likely to experience further weakness in the weeks ahead, targeting at least ~7100, or 3.5% lower – coincidentally exactly the same retracement percentage we are targeting for local stocks.

UK FTSE Weekly Chart

Banks and Financials

The “big 4” banks fell just over 1% last week and it’s hard to see them rallying hard until after we see CBA’s report early in August. We regularly get asked which is our favourite bank, and the answer understandably often depends on where they are trading at the time.

If we were looking to add to our banking exposure next week (which were not) BOQ would be our favourite whereas NAB, which we hold, unfortunately looks the heaviest short-term.

Bank of Queensland Monthly Chart

National Australia Bank (NAB) Weekly Chart

Resources

No change, we continue to believe the major Australian resource stocks will eventually make fresh highs for the year later in 2017. When we look at BHP where it trades in the US on the ADR’s its now only ~1.5% below last Februarys high, the strong $A is unfortunately discounting its performance on the local market.

BHP Billiton (BHP) on the ADR’s in $US Monthly Chart

The “yield play”

We’ve been on point with the likes of SYD and TCL over 2016 / 17 and if we continue to be correct the recent tough time is likely to continue for a while.

We are targeting over 10% downside in both SYD and TCL from current levels.

Sydney Airports (SYD) Monthly Chart

We have discussed the crowded trades a number of times over recent months and another one caught our eye this weekend, i.e. Challenger Ltd (CGF). Similar to CSL which has now fallen over 13% in just 4-weeks CGF has been a “go-to” stock for many fund managers for the last few years. CGF has corrected 7.5% over the last 5-weeks. CGF is a stock on our “shopping list” if this pullback continues, we are buyers of CGF ~$11.50 – MM has a large cash position so plans are needed if the market does spike lower.

Challenger Ltd (CGF) Monthly Chart

Gold sector

A number of subscribers have asked us recently why the local gold stocks are not following the precious metal higher, we touched on the answer earlier in the report with BHP – the $A. While gold has rallied almost 6% in $US over the last 3 weeks in $A it’s only been a gain of 2.5% hence our gold sector has not rewarded investors as they would have liked.

Standout technical chart (s) of the week

We’ve kept away from the energy sector for a long time, with the exception of our position in BHP. However to the oil buffs out there the ORG chart is looking very interesting:

ORG is a technical buy around $6.50 with stops under $6 targeting new highs over $8. i.e. solid 3-1 risk / reward.

Origin Energy (ORG) Monthly Chart

Investing opportunities for the coming week(s)

Now we are holding 23.5% in cash we are targeting a sharp move down towards 5500 to allocate over half of this money back into the market.

Trading Opportunities on our radar

From a technical perspective, we like PTM around the $5.30 area targeting fresh recent highs over $5.55, an excellent risk / reward play.

Platinum (PTM) Daily Chart

Summary

We are short-term bearish targeting a 4-5% correction back towards the 5500 support area. Ideally this correction does unfold and we can be aggressive buyers in August / September.

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 29/07/2017. 4.00PM.
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