Market Matters Report / Market Matters Weekend Report Sunday 4th June 2017

By Market Matters 04 June 17

Market Matters Weekend Report Sunday 4th June 2017

Market Matters Weekend Report Sunday 4th June 2017

The ASX200 bounced strongly from fresh multi-week lows last Tuesday, theoretically the market is still trading in a choppy manner which coincides with our previously forecast classic "sell in May and go away" seasonal pullback. However, no sell signals are being generated from overseas indices and the internals of the Australian market are improving rapidly which leads us to a short-term "sit on the fence" viewpoint. It never hurts either investors or traders to hold cash awaiting better / clearer opportunities. We are currently holding 10% of our MM portfolio in cash which feels just right here, we will buy further weakness and continue to sell strength where appropriate i.e. our anticipated action plan for the next 6-12 months before we foresee a move heavily into cash.

The following 3 statistics and views should be kept firmly in mind with June now underway:

1. The average correction for the ASX200 over the May-June period since the GFC is 6.9%, which targets 5545 - so far, we have seen a 4.7% pullback to 5679. If the ASX200 is going to correct the full 904-point advance since the US election in November the initial technical target would be the 0.382-Fibonacci retracement at 5610, just above major support at 5582. These statistics / levels imply to us that if the opportunity arises around the 5600 area it represents great buying.

2. CBA has already corrected $9.19 / 10.5% from its recent $87.69 May high, but the average pullback for CBA during May / June since the GFC is just over 10%, hence the seasonal statistical pullback is fully satisfied.

3. The June range to-date for the ASX200 is only 84-points from 5709 to 5793, hence until further notice a break of 5708 is likely to follow through to the 5600 area.

Importantly subscribers must remember how we believe the market is positioned going forward to understand our alerts / positioning i.e. We only anticipate another 6-8% upside for global equities before the mature major 8-year bull market is complete and then a painful +25% correction is likely to unfold. Hence, we are in very clear "buy weakness and be prepared to sell strength" mode. Most MM alerts over the coming months from the buy side are likely to be targeting a quick 10-20% gain, or a free dividend - we believe the time in this cycle to buy and hold a stock for 20-30% gains are well behind us in the vast majority of cases.

ASX200 annual seasonal Chart

Global Indices

Global stock markets continue to rally with many indices reaching fresh all-time highs last week. The MM view for global / US indices moving into June are outlined below:

1. We still see stocks rallying a further 6-8% from current levels but short-term a 5% pullback should not be discounted - we will be a buyer of such a retracement if it were to unfold.

2. The Dow looks positioned for another 2% upside into June, we will turn short-term negative on a close back under 2400 by the S&P500 and 21,100 for the Dow.

There are no clear negative signals at this point in time although we very aware that in the bigger picture US stocks are rapidly approaching our targets from early 2016. On Friday night stocks eked out gains although economic data showed US jobs growth is now at its lowest since 2012, remember don't fight markets that go up on bad news! Sentiment will change, it always does but too much money is lost trying to second guess when, just wait for the market to provide the signs.

Russell 3000 Index Quarterly Chart

Dow Jones Index Daily Chart

Banks and Financials

We were active in the financials last week topping up our CBA holding, buying BTT while using part of our large HGGDA holding to fund part of this fresh addition to our portfolio. While we are very keen on the sector it's very unlikely we will substantially add to our current holdings considering we now have 53.5% of MM portfolio financially facing. We may consider an additional 2.5% into Westpac if the banks drag the ASX200 back towards the 5600 area.

Medium-term we remain bullish the local financials index targeting ~17% higher prices, the current 9.5% correction has now reached our target area and downside momentum has fallen, similar to the banks. The US Banking Index continues to look 50-50 at best hence unfortunately it's still giving us no clues at present.

ASX200 Financial Index Quarterly Chart

Suncorp (SUN) Monthly Chart

Resources

Happily, no major change, we remain bullish the resources space looking for the big cap miners to add to their strong gains from early May.

We followed through with our "standout chart of week" last week by buying FMG when it broke under $4.66, we are targeting ~$5 or 18% higher. This is a great example of MM stalking and then buying a stock at our ideal purchase level, in this case following a 36% correction.

If this view on FMG proves correct and it rallies ~20% after dipping lower last week then our view for the resources as a sector looks on track.

Fortescue Mining (FMG) Daily Chart

Telstra (TLS) has rallied strongly from its April panic lows, around 12.5% putting our position almost into 5% profit.

We are likely to follow our plan and take profit between $4.55 and ~$4.60.

Telstra (TLS) Daily Chart

Standout technical chart (s) of the week

This week a lot of publicity has followed a prominent fund manager's decision to liquidate his entire equity holdings and return funds to investors. Today we have used 2 global index charts to illustrate why we believe he has been premature in his actions.

1. Japanese Nikkei - We remain bullish targeting ~22,000 or close to 10% higher.

2. Swiss SMI Index - We remain bullish targeting ~10,000 or close to 10% higher.

If both these indices are going to gain ~10% in 2017/8 its unlikely other global markets are going to suffer badly.

Japanese Nikkei Monthly Chart

Swiss SMI Index Quarterly Chart

Summary

No major changes, we continue to believe that US and local stocks can add to their recent gains into 2017, and potentially 2018. Our current thoughts:

1. Take profit on TLS close to $4.60.

2. We are losing confidence that the ASX200 will fall much further this May-June.

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-points on Monday, we believe the market will struggle to add to these small gains short-term but it's definitely tricky around the 5800 area.

Potential Investing opportunities for the coming week(s)

1. Buy an additional 2 1/2% WBC if the ASX200 challenges the 5600 area.

2. We are sellers of TLS ~$4.60.

* Watch out for trading alerts.

Potential Trading opportunities for the coming week

For the trader we can still buy FMG via stock / or options under $4.70 targeting a 20% rally over the next 3-4 weeks.

* Watch out for trading alerts.

Portfolio / Trade Holdings

The Market Matters Portfolio today is linked below. Last week we reduced our cash position to 10% by allocating 5% into Seek and Fortescue, an additional 2.5% into CBA plus switching 3%, of our 8% holding in HGGDA, into 5% of BT Investment.

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-2nd-june-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 03/06/2017. 10.00PM.
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