Market Matters Report / Market Matters Weekend Report Sunday 6th August 2017

By Market Matters 06 August 17

Market Matters Weekend Report Sunday 6th August 2017

Market Matters Weekend Report Sunday 6th August 2017

The ASX200 finished yet another extremely choppy week up +0.31% making it an astounding 11-weeks of trading in the tight range between 5629 and 5836, as we’ve been saying in a number of reports a breakout is statistically overdue. However, we are now getting some decent volatility on the stock level from a combination of company reports and simple news e.g. CBA fell almost 4% on Friday, while SUN was down -4.5% but FMG up +5.4% for the week. With the likes of Oz Minerals, Telstra, JB HIFI and CBA reporting next week this action on the stock level is highly likely to continue, even if the index remains calm. We often get noticeable inefficiencies in stock markets during reporting season, which equals opportunities, as analysts attempt the almost impossible task of evaluating all the information in a number company reports in double quick time. We are currently sitting on a high 23.5% cash position within the MM Platinum Portfolio hence we will have our eyes peeled for any stocks that we believe are being treated unfairly following their result.

Let’s again look at the ASX200’s “trading patterns”  as the first week of August is now behind us: 

  1. Short-term Neutral Pattern between 5629 and 5836.
  2. Medium-term Neutral Pattern between 5582 and 5956.
  3. August’s range to-date is 5706-5779 i.e. 73-points compared to July’s of 146-points.

MM remains comfortable with our portfolio’s large 23.5% cash level as on balance we still anticipate some weakness in August / September.  Ideally 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 9-weeks is likely to see a quick move to our targeted area, remember over 60% of the time since the GFC we have seen decent weakness in early August. Also, seasonally local stocks usually struggle in August and September plus we are getting some warning signals from the US market which has soared since Donald Trump’s election victory. Hence on balance, considering how long the local market has traded sideways we believe a decent drop lower in the next few weeks is a strong possibility which would provide an excellent risk / reward buying opportunity – that’s our current plan in a nutshell. However we must acknowledge any weakness over recent weeks has encountered solid buying.

ASX200 Weekly Chart

Global Indices

In the bigger picture while we believe the bull market for equities which began back in early 2009 is very mature but we don’t believe it’s yet time to jump ship. Ideally stocks will experience increased volatility as they climb the ever steepening wall of worry towards the +2100 area.

In June’s very well respected fund manager survey by Bank of America Merrill Lynch a record number of 210 fund managers involved believe global equities are overvalued, the highest since 1998, not the usual result at the top of the market. Interestingly they did agree with MM that US stocks and in particular the NAASDAQ tech stocks are most vulnerable to a decent sell-off.

MSCI Global World Index quarterly Chart

The US stock market has played along with our forecast for the vast majority of 2016/7 and as we’ve said for the last few weeks if this continues a bump in the road is just around the corner. While the big indices look bullish in the US, as they continue to make fresh all-time highs, the internals are not so pretty. Last week the equal weighting S&P posted its largest fall since May – i.e. an index that negates market value influences. So although APPLE was up close to 5% last week making indexes look solid a significant 13 companies falling over 10% it does not paint such a healthy picture. In simple terms the US share market is being dragged begrudgingly higher by just a few big names.

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 been in correction mode since May, just like the local ASX200. On balance European equities are now looking ok which certainly questions our negative interpretation of the ASX200 over the coming 2-months.

Euro Stoxx 50 Weekly Chart

Banks and Financials

The “big 4” banks all fell last week, led by CBA which dived almost 4% on Friday following revelations around money laundering. However, another negative caught our eye at the end of last week when Canada’s largest city Toronto experienced their greatest monthly fall off house prices in 17-years, a painful 4.6% in July. Australia often follows Canada in their economic trends and this is clearly a potentially large concern for our banks. If this report gets much air time in our local press it’s easy to imagine a further few % correction for the sector as buyers just hang back to “wait and see” creating air pockets of buying.

Technically NAB for example would at least target $29 if it breaks last week’s low. Obviously CBA reporting next week will add some spice to the banks mix.

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. RIO had a volatile week after reporting a miss on performance but lifting the dividend and buyback to set many minds at rest and hence enabling the stock to close up $1 for the week. In the short-term we feel far more comfortable with our BHP and RIO holdings than the banks.

RIO Tinto (RIO) Weekly Chart

The “yield play”

No change. 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.

Transurban (TCL) Monthly Chart

The $US

After falling ~10% since its December high we feel the $US looks ready for a bounce of ~3%. If this proves correct it should put some short-term pressure on gold / commodities while helping the $US earners like QBE. We continue to look for lower levels to increase our currently small gold exposure.

The $US Index Weekly Chart

Standout technical chart (s) of the week

Downer (DOW) is a stock we have not looked at in a long time but it looks excellent at present.

We could buy DOW under $6.80, with stops under $6.40 targeting ~$7.30. Admittedly only ok risk / reward but certainly investing / trading with the trend.

Downer (DOW) Monthly Chart

Investing opportunities for the coming week(s)

We are holding 23.5% in cash and are ideally targeting a sharp move down towards 5500 to allocate a decent portion of this money back into the market.

With reporting season unfolding its always important to be prepared, hence our thoughts around TLS who report in August where an opportunity may arise. TLS is clearly cheap however the dividend of 31cps is unsustainable – and will be cut at some stage. On our earnings numbers, a sustainable dividend is around 25cps which puts it on a 6% yield based on current prices – which is attractive.  It seems the market is factoring in a dividend cut – the timing of which is the issue. We think they’ll cut sooner rather than later, get the monkey off their back then look at refocussing the business into future growth.

We are buyers of TLS under $4.

Telstra (TLS) Weekly Chart

Trading Opportunities on our radar

As discussed in standout chart of the week we like DOW at current levels primarily as a trade.

Summary

We are short-term bearish targeting a 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 06/08/2017. 4.00PM.
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