Market Matters Report / Market Matters Weekend Report Sunday 5th May 2019

By Market Matters 05 May 19

Market Matters Weekend Report Sunday 5th May 2019

Market Matters Weekend Report Sunday 5th May 2019

The ASX200 entered May with a whimper falling 50-points / 0.8% as most sectors closed the week in the red with the Resources, Real Estate, Financials and Retail stocks coming under the most noticeable selling pressure. The Macquarie Conference as expected led to elevated volatility “under the hood” with  a significant 17% of the ASX200 closing the week up / or down by 5%, or more - the decliners won this particular battle 22 to 12.

The “sell in May and go away” saying can often be a touch self-fulfilling as investors become cautious around this historically weak period for stocks and following the 18% advance from Decembers low it’s easy to comprehend why investors are finding sitting on their hands an easy option, especially with the Federal election only 2-weeks away. However while we believe volatility is likely to rise into Winter this creates opportunities for the informed and flexible, just consider a few standout moves from last week that were at times very close to home:

Winners – ResMed (RMD) +11.6%, Orocobre (ORE) +12.4% and Afterpay (APT) +16.1%.

Losers – Regis Resources (RRL) -9.8%, Ausdrill (ASL) -9.2% and Janus Henderson (JHG) -14%.

The MM Platinum Portfolio managed to hold 2 stocks from each of the above two groups, while we outperformed the index over the week avoiding one of the big 2 losers would have made it a cracking week – another illustration that avoiding market hand grenades is as important as picking winners.

MM is now bullish while the ASX200 can remain above 6270 but we feel the 6400 area will continue to provide short-term resistance.

With the pending launch of both the MM International and Global ETF portfolio’s we have tweaked the Weekend Report to tailor more to the new larger MM Portfolio offering – any feedback as always appreciated:

1 –  Platinum Portfolio -Australian equities,reviewing our existing holdings and potential moves moving forward.

2 – Income Portfolio - Australian equities & income securities,reviewing our existing holdings and potential moves moving forward.

3 – International Equities - reviewing potential moves moving forward within the world’s largest 100 companies by market cap.

4 – MM Global ETF Portfolio - reviewing potential moves moving forward within the worlds ETF’s, a portfolio that will usually represent our global macro outlook on markets.

This is a very exciting times for MM as we continue to evolve our offering, remember we already have 2 SMA’s available to subscribers based  both the Platinum & Income Portfolios.

ASX200 Chart

In April the ASX200 Accumulation Index (which includes reinvested dividends) made fresh all-time highs, hitting our 67,000 target area. However as we’ve witnessed with the 3 previous major post GFC highs in 2010, 2015 and 2018 the market often likes to spend at least 2-3 months grinding higher before actually rolling over for a decent correction. It’s this characteristic that makes picking tops generally far harder than identifying lows – at tops traders keep selling, getting stopped out until the market finally falls without them, its often referred to as the market moving in the path of most pain!

Our preferred scenario is still we will now see the ASX200 grind higher for a few months. However if we see the ASX200 again flirt with the 6400 we are considering buying the BBOZ ETF to hedge some of our market exposure i.e. the BetaShares Leveraged Bearish ASX200 ETF.

Our preferred scenario is we will now see the ASX200 grind higher for a few months.

ASX200 Accumulation Index Chart

Markets are influenced / driven by different factors through both bull and bear markets with a couple of recent examples being the US-China trade talks, worries around a global recession, BREXIT and even North Korea. However the train driving equities at present is bond yields as global central banks have performed a synchronised pirouette by becoming far more “dovish” – more chance of interest rates falling as opposed to rising through 2019 /2020.

In Australia our 3-year bond yields have reached an all-time low and the futures market is already factoring in at least 2 interest rate cuts locally, taking the RBA targeted cash rate down to 1%, another all-time low. It remains hard to imagine local interest rates going much lower BUT with the German 5-year bond yield close to -0.5% as James Bond said “never say never gain”. 

The last few weeks have seen the 3-year bonds rotate sideways and the ASX200 has again followed their lead but our view is that an RBA cash rate of 1% is likely to be as good as it gets hence the surprises may slowly be increasing in the alternative direction.

MM believes stocks will remain firm until bond yields start to increase, or perhaps just plateau.

ASX200 v Australian 3-year Bonds Chart

1 –  Platinum Portfolio

The MM Platinum Portfolio had a mixed week with Ausdrill (ASL) and Janus Henderson (JHG) letting down the team – we will review these 2 a little later.

Firstly, we will look at the 2 stocks which are close to our sell levels i.e. Telstra (TLS) around $3.50 and Healius (HLS) at $3.25 / $3.50. At this stage we are not rushing to jettison either from the MM portfolio especially since we’ve already trimmed back our position in TLS a few weeks ago.

Healius (HLS) Chart

Secondly, let’s consider the 2 stocks which stopped the MM Platinum portfolio enjoying a stellar week, Ausdrill (ASL) and Janus Henderson (JHG).

Ausdrill (ASL) fell over 9% last week on what appeared to be some hangover style selling courtesy of a $10m fraud by an Australian employee, a situation that was uncovered when the company was refinancing debt in the US. EY have been hired to run a fine toothcomb over the books and assuming there’s no further bad news that’s been leaked to the market the latest pullback feels overdone. The specialist drilling services company is trading on a very “cheap” Est P/E of 9.7x for 2019 while the stock yields 4.7% fully franked.

If we had no position we would buy any consolidation around the $1.50 area but our 3% exposure feels enough at present.

Ausdrill Ltd (ASL) Chart

Janus Henderson (JHG) fell over 14% last week with the majority occurring on Friday after the company released a disappointing first quarter update which showed net income of $US94.1m, down 43% on last year and below market expectations. The company reported a decline in management fee margin due to lower performance fees and outflows from higher fee equity products.

From a positive perspective JHG ended the quarter with an increase of 9% in FUM to over $US350bn. This is an annoying hiccup but the stock remains cheap trading on an Est P/E for 2019 of 8.7x, while yielding 6.4% unfranked.

If we had no position we would buy any consolidation around $30 but our 5% exposure feels enough at present.

Janus Henderson (JHG) Chart

Thirdly, stocks we are considering buying in the weeks ahead, a very relevant angle as we have a 23% cash holding. The story Is mainly resources, with last week’s interview with Shaw & Partners Resource Analyst Peter O'Connor covering a number of our thoughts – Peter is the No 1 ranked analyst on Fortescue (FMG).

1 - We are keen accumulators of Fortescue Metals (FMG) below $7 and RIO around $90.

2 – We remain buyers of gold stocks into weakness e.g. Evolution (EVN) below $2.75, Newcrest (NCM) sub $24, Saracen (SAR) under $2.50 and Regis Resources (RRL) $4.

Fortescue Metals (FMG) Chart

2 Income Portfolio

The Income Portfolio currently holds 17% in cash, a relatively large position considering the portfolios objective.

We gave the Portfolio a spring clean in mid-April leaving us mainly focused on where to invest our “excess” cash. The answer is very similar to the Platinum Portfolio, we have been waiting for a pullback in the resources to build a position.  With BHP down another 1% on Friday night, even while global stocks rallied, we may get an opportunity sooner rather than later – again we like FMG below $7 and RIO around $90.

NB Its not often that stocks will be on the menu for both the MM Active Platinum Portfolio and Income Portfolio.

RIO Tinto (RIO) Chart

3 –  International Equites Portfolio

We remain bullish global equities but the “easy money” on the long side feels well and truly behind us.

At this stage a few stocks we like that have been in our Overseas Report recently are Facebook (FB US), Apple (AAPL US), Amazon (AMZN US), Netflix (NFLX US) and Alibaba (BABA US) all from the big end of town but we intend to cover more of the stocks that will be in the portfolio over the coming weeks.

Watch for the launch of the portfolio in the next few weeks but we will play our way in slowly unless the market has a decent correction in May.

MSCI World Index Chart

4 - MM Global ETF Portfolio

A new concept to MM but the portfolio will replicate our macro opinion primarily around global stock indices, different market sectors, interest rates and currencies – this can very often be played by investing in ASX listed ETF’s but when required may also turn to overseas listed ETF’s. We have regularly discussed our views across these economic themes and its time to put theory into reality. A  list of Australian ETF’s updated at the end of February this year can be found here:

We have discussed  a number of times in 2019 that we believe the consensus bearish Australian $A view is becoming way too crowded – MM believes the $A will see 80c before 60c against the USD.

Hence when we believe the time is right we are likely to add the AUDS ETF to the MM Global ETF Portfolio.

BetaShares Strong $A (AUDS) ETF Chart

Another example is at some stage in 2019 we are likely to become bearish the ASX200 hence we could / may buy the BBOZ but we may still be bullish gold (QAU) or the Resources (QRE) hence we can create a mosaic of positions which at times have limited exposure to the underlying index itself as opposed to which sectors outperform – an exciting prospect for all at MM.

BetaShares Leveraged Bearish ASX200 ETF (BBOZ) ETF Chart


Short-term stocks that look mildly bullish with our main focus in May looking to buy the current pullback in the resources / gold stocks.

Chart of the week.

Last week we went long Orocobre (ORE) initially targeting ~30% upside with the Wesfarmers (WES) bid for Kidman Resources (KDR) the definitive catalyst.

The US Lithium ETF (LIT US) also looks very bullish with an initial target ~25% higher. Combining these factors plus the huge short position in the lithium space may easily lead to an aggressive squeeze, we hope so!

MM the lithium space over the next few months minimum.

Lithium ETF (LIT US) Chart

Orocobre (ORE) Chart

Investment of the week.

Well known property business Lend Lease has endured a horror 9-months watching its share price fall almost 50%. However we believe the worst is behind them and a recovery story is slowly underway.

MM is bullish LLC targeting 10% upside minimum.

Lend Lease (LLC) Chart

Trade of the week.

Seek presented strongly at the Macquarie Conference last week after putting releasing ‘tweaked’ guidance a few days before.

A “pop” back towards its $22 highs would not surprise whereas a break back below $18.50 would be bearish technically, hence:

MM likes SEK targeting $22 with stops under $18.50 – ok 2:1 risk / reward.

Seek (SEK) Chart

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.



Have a great day!

James & the Market Matters Team


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, or after the session when positions are traded.


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 4/05/2019

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