Market Matters Report / Market Matters Weekend Report Sunday 6th November 2016

By Market Matters 06 November 16

Market Matters Weekend Report Sunday 6th November 2016

Market Matters Weekend Report

Overview

The ASX200 feels simply horrible at present but then again it usually does at good buying opportunities. We again underperformed most of our global piers last week falling just under 2% as we embraced the negative sentiment around the US election. Who would have thought that Donald Trump may become arguably the most powerful man in the world next week. The current market is all about next Tuesdays US election and to a lesser extent some individual performances from Australian stocks. Last night the US employment data, often the most important event of the month for markets, was largely in line with expectations except for a 0.4% increase in wages. This acceleration in wages growth we believe will be the catalyst for the US to raise interest rates in December and again into 2017. However we also believe markets are underestimating the pickup in inflation that is likely to follow this wages growth plus many years of unprecedented "free money" provided by the major central banks. After the US election next week we will focus on stocks that perform well, and poorly, during periods of rising inflation as we formulate an investment path for the next few years.

The local market has accelerated to the downside once it broke the critical 5400 support area. With ANZ and Westpac paying meaty dividends in the coming weeks further pressure would normally be expected to hit the overall index. We have pointed out a few times that the heavyweight banking sector usually performs badly in November with the 3 majors that go ex-dividend regularly falling by noticeably more than the dividend. On Friday we witnessed this phenomenon from NAB who fell ~2.5% more than its 99c fully franked dividend. Already for November CBA, who pays no dividend until next February has fallen 3.3% leading the market lower which has fallen only 2.6%.

Lets apply some simple common sense to our local market today. The ASX200 has fallen 318-points (5.8%) over recent weeks with the US election / Trump fears a significant negative influence. However with the outcome likely next Tuesday night the local fund managers may be close to putting their toe in the water and perhaps allocating a % of their free cash to work. They could be quickly frustrated if we get a huge relief rally on a Clinton, or Trump, win and they have missed some excellent bargains. Overall we unfortunately remain negative the ASX200 unless it can close over 5265 and especially 5400 but we see major support looming at the 5100 area and believe a 100-point "relief rally" is very close at hand. We are considering some selective buying opportunities next week.

ASX200 Weekly Chart

The US stock market has now fallen for 9-consecutive days as Donald Trump's election campaign gains traction. The "Fear Index" VIX has almost doubled as the uncertainty builds.....who will win the race to the Whitehouse? Let's take a deep breath and stand back from the noise and look at the simple facts at hand:

1. The US stock market usually drifts into a close election and then rallies strongly whoever wins - the initial gains are on average close to 5%. The S&P500 is less than 5% below its all-time high after falling for 4-months, clearly a drift, not a plummet.

2. The strongest seasonal period for US stocks is November through to January.

3. After 9-consective declines US stocks usually rally like an uncoiling spring.

4.The market entered the BREXIT vote in a very complacent manner however clearly the opposite is true of this US Presidential election where some bad news is clearly being factored into the markets i.e. stocks down, bonds and gold up.

There is an old saying in the market "buy on rumour sell on fact", arguably the opposite has been in play as we enter the next week's vote. We cannot help but think of legendary investor Warren Buffett's famous quote in today's market when so many people are extremely scarred of the looming US election.

"Be fearful when other are greedy and greedy when others are fearful" - Warren Buffett.

Interestingly a Trump victory may be short-term ok for stocks with his mandate for huge tax cuts and fiscal infrastructure spending, the longer term ramifications are clearly far more uncertain. We would definitely not be short US stocks over the coming weeks at this point in time.

S&P500 Quarterly Chart

Unfortunately corporate Australia has been a huge negative influence on the local share market over recent weeks with the vast majority of both unfolding situations and company reports leading to significant share price declines. Below tells the tale of the last months trading where the ASX200 has fallen 5.2%, we have only included stocks that have moved over 10% or the ist would be too long! :

1. Declines: Bank of Queensland (BOQ) -12.6%, Crown (CWN), Star Entertainment (SGR) -20.2%, Flight Centre (FLT) -16.2%, Henderson (HGG) -17.4%, AMP Ltd -15.8%, Santos (STO) -12.7%, Oil Search (OSH) -10.4%, Caltex (CTX) -13.2%, Ansell (ANN) -11.2%, Healthscope (HSO) -29.1%, Cochlear (COH) -13%, Ramsay Healthcare (RHC) -11.7%, Resmed (RMD) -11.3%, Boral (BLD) -13.9%, Fairfax (FXJ) -16.7%, REA Group 14.7%, Iron Mountain (INM) -10.7%, JBH HI-FI (JBH) -10.5%, Carsales.com -16.3% and TPG Telecom (TPM) -11.2%.

2. Advances: Newcrest (NCM) +11.4% and Northern Star (NST) +10.8%.

An incredibly sobering list of 21 losers and only 2 winners courtesy of the flight to gold ahead of the US election. Also a number of high profile companies like Wesfarmers (-9.3%) were close to making the losers list. It's very easy to see why local investors are throwing up their hands, the only game in town has been the resources space and of course bricks & mortar. Overall this list of "problems' is why we believe our market will struggle to get off the floor to any meaningful degree even if the US market makes fresh highs.

Our current view is buy healthcare / beaten up stocks at attractive levels while not chasing stocks on mass - remember seasonally November / December is when the Healthcare sector usually outperforms the market.

In Mondays report we will cover 3 stocks we are considering buying ahead of the US election plus two potential trading positions.

Standout technical chart (s) of the week

Woolworths has been a great example of "Symmetry Waves" that we watch carefully for technical triggers. In 2016 WOW bounced $5.75, a very similar correction to the $5.60 rally in 2014. While we are 50-50 just here our "Gut Feel" is WOW will fall under $20 before offering good risk/reward on a recovery story - simply a bit more time is required.

Woolworths (WOW) Weekly Chart

Summary

Our view is the local market has now turned bearish unless the ASX200 can close over 5265. The jury is still out on overseas markets who remain in a holding pattern ahead of the US election. We will be very selective buyers moving forward looking for stocks that should be ok in an increasing inflationary environment.

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 any strength.

What Matters this week

The ASX200's is set to open down 25-points on Monday, with little major lead from overseas markets but we are unfortunately in a negative frame of mind at present.

Potential Investing opportunities for the coming week(s)

See Mondays report for 3 stocks we are considering buying at current levels, ahead of the US election.

Potential Trading opportunities for the coming week

See Mondays report for 2 stocks we are considering as trades ahead of the US election.

* Watch out for trading alerts.

Portfolio / Trade Holdings

The Market Matters Portfolio:

https://www.marketmatters.com.au/blog/post/market-matters-portfolio-friday-4th-november-2016/ 

We recently trimmed our banking exposure which currently looks a good move. We allocated half of the proceeds into Ansell, but more importantly our overall cash position has increased to 21% - never enough when the market has a bad few weeks!

Australian ASX200

The ASX200 had another poor week closing down just 103-points (1.9%), we are now negative the local market while its under 5265.

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

Chart 3 – ASX200 Daily Chart

Chart 4 - SPI (Share Price Index) December 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 but probably a little further down the track.

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 stock market has now fallen for 9 straight days as concerns around next Tuesday's election grow, statistically we should rally hard from here, let's wait and see what happens on Tuesday.

Chart 8 – Dow Jones Index Monthly Chart

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, they appear to be 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 Hang Seng and China indices look ready to rally, the Nikkei conversely still needs to close over 17,500 to look positive..

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 again had a very poor week with some large individual stock moves, unfortunately primarily on the downside e.g. Flight Centre (FLT) -11.3%, Mayne Pharma (MYX) -13.8% and Carsales.com (CAR) -8.1%.

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) Monthly 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 like many markets 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 next week.

Chart 59a– Australian Dollar (AUD) Monthly Chart

Chart 59b– The $US Index Monthly Chart

Commodities

Cracks appeared in gold recently as it fell ~US60/oz but failed to reach our $US1200/oz support area. The market will be clearer after the US election.

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 distant thought after last week's weakness, 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 3/11/2016 5.25PM

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