Market Matters Report / Market Matters Weekend Report Sunday 30th October 2016

By Market Matters 30 October 16

Market Matters Weekend Report Sunday 30th October 2016

Market Matters Weekend Report Sunday 30th October 2016

October has only one trading day remaining but it's been a very disappointing month for the local market which is down 2.8% and noticeably underperforming most global indices. The broad market weakness is worse when we consider that our banking sector is up 0.7%, plus the Bank of Queensland has traded ex-dividend. The local decline has been the result of a combination of some weak market sectors, some poorly received company results, the dumping of the "yield trade" plus some left field events. The following list shows some of the minefields that were awaiting investors in the Australian stock market in October - a number of which we will cover in more detail later in this report.

1. The Healthcare sector -10.9% and the Telco's -10.2%.

2. AMP -11.4%, Wesfarmers -8.7%, Cochlear -10.9%, Ramsay Healthcare -10.3%, Healthscope -28.2%, Sirtex -12.3% and TPG Telecom -16.8%.

3. Sydney Airports -13%, Westfield -10.3% and Transurban -10.4%.

4. Crown -18.5%, Star Entertainment -17.4% and Ardent Leisure -26.3%.

As we said the ASX200 would have endured a far worse month if the banking sector was not positive, yet still considering all of the above negative influences falling less than 3% does not feel too bad. However the big "but" is now can local stocks recover as we enter the weakest seasonal month for our heavyweight banking sector. Unfortunately, we do not think so unless the ASX200 surprises us and closes over 5380 - last week our banking sector gave back 2.1% even after NAB produced a good result and closed in the black for the week. Always remember "a market that cannot rally on good news" is a weak market. The Australian Banking Index has declined over 2% on average since the year 2000 in the month of November. Ideally, Australian banks should be bought in the last week of November prior to the "Christmas rally" and we will be watching for opportunities, especially with banks that pay dividends in the months ahead.

Our view is the local ASX200 will decline at least until the US election in 9-days time, interestingly US stocks rally an average of 4.8% after a close election is over, whoever wins, but it's hard to imagine that unfolding if Mr. Trump gets up - a great statistic showing markets hate uncertainty. Over the last few days, the local market has declined 194-points fairly aggressively, hence some retracements are likely, for the traders we advocate selling 35 and 80-point bounces with stops over 5380.

ASX200 120-minute Chart

1. The Healthcare Sector

As planned we have increased our Healthcare exposure into Octobers predictable weakness in anticipation of a strong seasonal rally into Christmas - the average return of the next 2 months is usually ~5%.

We bought Healthscope into the recent aggressive selling after the company reported. Considering that we booked a 19.7% profit last December from selling the stock closer to $3 this was an easy purchase psychologically. Fundamentally we believe HSO is in exactly the correct space and when the dust settles the stock will regain traction. We may be tempted to add another 3%, taking our portfolio holding to 8%, around the $2.10 area if the opportunity occurs.

Healthscope (HSO) Weekly Chart

Notably we also like Cochlear around $120 but if we decide to buy the stock it will may go into our "trading position" as we are already 20% committed to the healthcare sector in our primary portfolio.

Cochlear (COH) Monthly Chart

2. Company results

The market took a number of the recent results very badly and in some cases it will end up being an excellent opportunity but in others it will be a red flag to exit the stock. We underestimated the impact of TPG Telecoms poor numbers as it resulted in a battering for the sector including over 10% for our Vocus (VOC) holding but in hindsight, which is always clever, this was another great example of what unfolds when all investors are facing one way - in this case no buyers left and lots of sellers at market!

We can now see a short-term trade close at hand in TPM if the stock falls under $7 targeting a 10-15% bounce.

As discussed earlier we bought HSO following a disappointing result and we now feel comfortable holding over 20% of our position in cash when this degree of volatility is occurring within quality, but often overpriced, stocks - it equals opportunity!

TPG Telecom (TPM) Weekly Chart

3. The unwind of the yield play

This is the major theme we have been pushing for a number of months and its caught a lot of investors napping. Interest rates have already rallied significantly - we just have not seen a move by the RBA and we probably won’t until late 2017 / 2018. US 10-year bonds look ready to hit 2% in coming weeks which is a huge 50% increase from the July lows - markets watch this very carefully.

US 10-year bond yield Monthly Chart

Stocks that were held by investors for their perceived safe yield have been hammered. Sydney Airports has fallen over 20% without doing anything wrong as a company, the stock simply became overpriced and the macro backdrop that had supported the rally changed. We are no longer negative at current levels but are in no hurry to buy any stock that will be hurt by rising interest rates considering our medium term view for higher rates.

Sydney Airports (SYD) Monthly Chart

4. Left Field situations

Recently we saw bad times for casino operators and tragically Ardent Leisure due to the Dream World accident. We are not keen to get involved with the casinos, or anybody else for that matter, who is locking horns with the Chinese regulators. The news of the Dream World accident was taken badly by many people which is to be expected as most of us have actually been there. We have no interest in trying to make $$ from this type of situation but it does again demonstrate that cash and hence some flexibility is a winning formula in today's market.

Last week we took a healthy profit on our trading position in IGO, not because we were no longer positive the stock but we wanted to increase our cash position and IGO had taken us on a volatile journey - we bought the stock ~$3.83 and had been up 17% but also down 8.6% hence taking a profit over 10% felt net good.

Independence Group (IGO) Weekly Chart

Standout technical chart (s) of the week

We confidently pushed a sell on Westfield (WFD) when it was $11 which has unfolded perfectly. The stock has fallen 21.5% in 4 tough months for the property trust. We would no longer be short WFD and our view is WFD is actually a buy under $8.60 with stops under $7.90 looking at least for a shorter term bounce.

Westfield (WFD) Monthly Chart


Our view is the local market has now turned bearish unless the ASX200 can close over 5380. The jury is still out on overseas markets who remain in a holding pattern.

US equities have reached fresh all-time highs, our strategy remains clearly defined - we are wearing our "Sellers Hat" looking to slowly lighten equities exposure into strength.

What Matters this week

The ASX200's is set to open down 10-points on Monday, with little lead from overseas markets but last week's locally negativity is likely to be still at the front of many people's minds.

Potential Investing opportunities for the coming week(s)

We like JB-HiFi, QBE, WFD and HSO (average) at, or close to, current levels but having built our cash position up over 20% we are unlikely to go on a spending spree. Also we will be watching Origin carefully as November is usually a poor month for the energy sector and there is plenty of room for disappointment within the space at present.

Potential Trading opportunities for the coming week

We are negative the market at present so any buying of stocks for trading is likely to be short and hopefully sweet. We are watching COH and TPM into weakness. Resource stocks remain in flavour but volatile as we pointed out with IGO, we remain keen on resources into weakness rather than strength.

Portfolio / Trade Holdings

The Market Matters Portfolio:  

We trimmed our banking exposure last week, as recently flagged, by taking profit on ANZ, fortunately the day before it fell 48c (1.7%). We allocated half of the proceeds into Ansell, increasing our healthcare exposure as planned - ANN was last week's "standout chart of the week". We also took profit on our trading position in Independence Group (IGO) to increase our cash position to 21%.

Australian ASX200

The ASX200 had an extremely poor week closing down 147-points (2.7%), we are now negative the local market while its under 5380.

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

Chart 3 – ASX200 120-minute Chart

Chart 4 - SPI (Share Price Index) Futures 60-mins Chart

Chart 5a ASX200 Banking Index Monthly Chart

Chart 5b ASX200 Financials Index (excl. REIT's) Weekly Chart

Chart 6 Volatility (VIX) Index Weekly Chart

Interest Rates

Short-term interest rates in the US look ready to move significantly higher but we may see a few more weeks / months sideways action first. The picture is similarly locally where we see higher interest rates on the horizon.

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 market had a fairly quiet week with Dow closing up 16 points. Overall the current technical picture is remains firm for US indices but over the medium term, we still see a 20% correction.

1. The Dow (30 companies) has satisfied our fresh all-time target in 2016 and while we may see higher prices we believe a 20% correction is looming.

2. The Russell 3000 Index (largest 3000 US stocks) has satisfied our fresh all-time target in 2016 and while we may see higher prices we believe a 20% correction is looming.

3. The S&P500 (500 stocks) has satisfied our fresh all-time target in 2016 and while we may see higher prices we believe a 20% correction is looming.

4. The NYSE Composite Index (1900 stocks) has so far failed to achieve targeted fresh all-time highs in 2016, currently ~9% short.

5. The Russell 2000 Index (small cap index of 2000 stocks) has so far failed to achieve targeted fresh all-time highs in 2016, currently ~9.5% short.

6. The NASDAQ (tech index) has satisfied our fresh all-time target in 2016 and while we may see higher prices we believe a 20% correction is looming.

Hence two indices we look at the NYSE Composite and Russell 2000 have failed to achieve our targeted fresh highs for 2016. The big question is are we seeing divergence prior to a 20% fall for US stocks or have they got one final blow off in them which most market pundits are not predicting.

Chart 8 – Dow Jones Index Monthly

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 Banking Index Monthly Chart

Chart 10d – 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, perhaps they are treading water with the US market ahead of the Trump v Clinton vote on 8th November - overall European Indices are slowly gaining positive momentum.

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 Nikkei looks excellent and the Hang Seng and China indices look ready to rally after a bit more sideways choppy style price action. The Emerging Markets now feel more likely to fall short term.

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 very poor week with some large individual stock moves, primarily on the downside e.g. AMP -11.5%, Wesfarmers -8.6%, Sydney Airports -8.3% and Fortescue +7.6%.

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 Daily 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 – 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) Quarterly 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 is very trickly at present, we continue to eventually target the ~65c region but short-term we "just" favour ongoing strength for the $A towards the 81c area.

The $US is 50-50 just here technically although we have a "Gut feel" positive bias, a kick over 102 would complete a classic advance structure, currently the market is giving us few clues which is no surprise with the US election looming in under 2 weeks.

Chart 59a– Australian Dollar (AUD) Monthly Chart

Chart 59b– The $US Index Monthly Chart


Cracks appeared in gold recently as it fell ~US60/oz and a pullback towards $US1200/oz support cannot be ruled out, however, it continues to perform well considering the recent $US strength.

Copper remains in a negative downtrend on a longer-term basis targeting prices over 20% lower.

Our target for Crude Oil of +$US60/barrel again looks a potential after the recent OPEC meeting but it needs to punch through $US52/barrel to look good.

Iron Ore has achieved our +$US70/tonne target, technically we remain neutral but a potential "abc" target of ~$US80/tonne has raised its head.

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 28/10/2016. 4:30PM.
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