Market Matters Report / Market Matters Weekend Report Sunday 7th May 2017

By Market Matters 07 May 17

Market Matters Weekend Report Sunday 7th May 2017

Market Matters Weekend Report Sunday 7th May 2017

The ASX200 traded poorly last week correcting over 2% after making a fresh multi-year high on Monday at 5956. Due to the advent of computers, which makes "surface" statistical analysis far easier, virtually all investors / traders are aware of the seasonal phrase / facts of "sell in May and go away". By definition this can to a certain degree become self-fulfilling as fund managers and investors wait in expectation of buying stocks at lower levels over the coming weeks and therefore there is an obvious void of buyers. This weekend's report is focused on some stock / sector specifics as we continue to believe the ASX200 is close to an inflection point. Let's quickly recap on some of the numbers for May / June which we deem to be important:

1. The average correction since the GFC over the May-June period is 6.9% hence if 5956 remains the high for May the eventual downside objective is ~5550.

2. If the ASX200 is correcting its 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.

3. We recently took a great profit on our CBA position ~$87, it reached $87.74 but closed on Friday at $84.40. The average pullback in CBA during May / June since the GFC is just over 10% which targets ~$79 from the $87.74 high.

Overall, we remain bearish the ASX200 during May / June targeting an initial test of 5800 with a strong possibility of a test of 5600.

ASX200 Daily Chart

The US market continues to follow our script which does not bode well for stocks over the coming weeks, the MM view for US indices moving forward remains the same:

1. We see very limited short-term strength from US stocks, ideally ~1-2% higher before a decent reversal.

2. We are then targeting a ~5% correction which is likely to last a few months.

Our anticipated correction for US stocks potentially coincides with an eventual test of the 5600 area for the ASX200.

Dow Jones Index Daily Chart

When markets correct it always feels like we don't hold enough cash, even as is the case now when it's close to the 30% mark in the MM portfolio. Let's glance at how the MM portfolio of stocks fared last week when the overall index fell -1.5%

Cash at 29.0% - no problems there.

ANZ Bank (ANZ) -6.4%

CYBG (CYB) +1.7%

National Australia Bank (NAB) -4.3%

Henderson Group (HGG) -1% (traded ex-dividend)

QBE Insurance (QBE) +0.5%

Suncorp (SUN) +2.8%

BHP Billiton (BHP) -4.6%

OZ Minerals (OZL) -10.5%

Newcrest Mining (NCM) -5.1%

Rio Tinto (RIO) -5.4%

Telstra (TLS) +4.3%

We not surprisingly remain very happy with our diversified financials and TLS exposures, both of which rallied last week even when the broad market declined. Hence today we are going to again focus on the banks and resources to ensure subscribers understand our thinking around these 2 sectors which suffered declines last week.


Next week we will see ANZ go ex-dividend on Monday and NAB the following Tuesday. Also, to add spice to the mix Westpac who report on Monday and will trade ex-div this Thursday - the fun in the banks continues! CBA has declined ~3% since we exited the stock - this is obviously not enough to justify the sale but our target of sub $81 would be i.e. ~8% pullback, less than the average 10.4% pullback in May / June since the GFC. Our plan moving forward for the local banks:

1. Take profit on our 8% ANZ position on Monday i.e. after the stock has traded ex-dividend. The stock has advanced 21.9% + dividends over the last year.

2. Allocate 3.5% of the 8% ANZ sale into NAB, taking our holding to 7.5%, looking to receive the 99c fully franked dividend on Tuesday week. We feel NAB had a better-quality report last week than ANZ plus it yields 6.09%, compared ANZ's 5.02% - also over the last year NAB has advanced only 15.4%, much less than ANZ.

3. Allocate 10 - 12.5% into CBA under $81.

Obviously, we are assuming local banks open around Friday's closing levels and Westpac's result holds no major surprises.

Commonwealth Bank (CBA) Monthly Chart


The last few weeks have been tough going in the resources space, especially after we have increased our exposure to the sector to 17.5% via BHP, OZL and RIO - plus an early 5% foray into gold focused Newcrest Mining. With the exception of OZL the stocks have held up ok since our entry but they have not yet recovered as anticipated. BHP is set to open around $23.25 on Monday, only 2% below our entry level but it feels much worse! We still believe the miners are relatively cheap at current levels but clearly, they have been in the glass half empty camp since late January, Friday nights strength overseas feels like it may well be a turn for the sector.

Technically BHP will look strong if it can trade back over $24, and this should lead to a quick 5-6% rally.

1. If we get a quick rally back towards the highs of ~4-weeks ago we may well trim our BHP and / or RIO holdings.

2. Conversely if Fridays panic lows are broken we are likely to reduce our resources sector exposure.

We have plenty of $$ giving us the flexibility to average but having caught the proverbial "falling knife" we must remain open-minded to being wrong.

We will discuss OZL in more detail during Mondays "questions" report.

BHP Billiton (BHP) Resources

One of our favourite stocks at current levels is Alumina (AWC) which reached our ideal buy area last week. This is another reason we didn't panic around our overall resources exposure.

We are keen buyers of AWC ~$1.70, this would be initiated as a trade given our resources position is high enough for now, note we would be technically concerned on a break under $1.60.

Alumina (AWC) Monthly Chart

Standout technical chart (s) of the week

European stocks remain very bullish, led by the German DAX which has made fresh all-time highs over recent weeks. Three things of note:

1. We remain bullish European equities during 2017/8 targeting further gains of ~8% for the Euro Stoxx.

2. The German DAX remains clearly strong but it is now less than 3% from our long-term target of the 13,000 area.

3. We remain comfortable with our Europe facing positions of HGG and CYB but we will not become "married" to them.

Euro Stoxx Monthly Chart

German Dax Monthly Chart


We continue to believe that US and local stocks can add to their recent gains into 2017, and potentially 2018. However ideally over the next 1-2 months we will see a decent pullback in stocks, probably after one more small pop higher from US stocks, our current thoughts:

1. Sell ANZ ex-div. next week and switch part of the monies into NAB for next week's dividend.

2. Buy CBA under $81.

3. Buy RRL under $3.05.

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 over 1% on Monday following strong gains from the resources sector in overseas markets. BHP is poised to open ~$23.25, up close to 3%. Interestingly the financials and healthcare stocks were the only sectors lower in the US on Friday night.

Potential Investing opportunities for the coming week(s)

We are looking to switch ANZ to NAB on Monday while increasing our cash position.

Potential Trading opportunities for the coming week

We are considering buying AWC as a trade.

Portfolio / Trade Holdings

The Market Matters Portfolio as of today is below, notably we have increased our cash holding to 29.0%. We have been more active than usual over recent weeks/ months which is to expected as this major bull market matures over the coming weeks we may "tinker" with our bank holdings as the 3 of the "big 4" trade ex-dividend.

Weekend report Charts / Chart Pack

The Market Matters Weekend report charts can be found below:


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.


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 6/05/2017. 10.00PM.
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