Market Matters Report / Market Matters Weekend Report Sunday 8th September 2019

By Market Matters 08 September 19

Market Matters Weekend Report Sunday 8th September 2019

Market Matters Weekend Report Sunday 8th September 2019

The ASX200 continued with its decent recovery last week, finally closing up 42-points, it’s now corrected just over 50% of its decline from Julys all-time high. Presidents Trump and Xi Jinping have raised hopes around a US-China trade war resolution following an agreement that the 2 countries would sit down and talk in Washington next month – a huge step in the right direction, we cannot get a resolution when their not talking! The gains locally were relatively evenly spread across the market although the classic safety sectors experienced some noticeable profit taking e.g. Real Estate, Utilities, Transport, Healthcare and Gold. The sector / stock rotation has just began in our opinion with the main question being is this a warning for the months ahead, or have investors decided interest rates are  close to their bottom and its time to restructure portfolios now.

Overall last week the news flow was far better than many feared on the economic front, especially from China who also continue to unleash further stimulus, this time by lowering cash levels that banks have to hold in reserve. However this becomes a 2-edged sword with any sign of economic strength reducing optimism that central banks will continue to cut interest rates in an effort to maintain post GFC economic expansion. However on Friday night AEST the US saw weak employment data but higher wages which theoretically should help spending, more importantly Fed Chair Jerome Powell said the US central bank would “act as appropriately” to maintain economic expansion.

The Fed Chair also bravely said the global economy was unlikely to fall into a recession, in other words expect more fiscal and monetary stimulus if required from the Fed.  Interestingly Google searches in the US for “recession” have hit their highest  level since 2008, arguably a bullish sign because the masses usually don’t foresee economic downturns.

On balance we still believe stocks are in the process of correcting their huge 2019 rally, in the case of the ASX200 a pullback of 33% over just 6-weeks after rallying strongly for 7-months is well below the historical average hence we are happy to be cashed up in the anticipation of buying aggressively around the 6200 area, or 6% lower. As always we remain open-minded to what comes next but increased flexibility feels the optimum position around this 6600 area.

The SPI futures are calling the ASX200 to open down a few points on Monday,  we still feel the local market is approaching / around an inflection point, with a move downside likely to follow.

At MM we are comfortable adopting a more defensive stance around the current 6600 area.

ASX200 Chart

Our concern towards equities short-term is primarily around the  “go to” group of stocks where we believe  the risk / reward is generally very unattractive.  Fund managers appear to have been very reticent to buy the market and when they have allocated funds into the ASX200 it looks to have sought a home in  a very concentrated  group of companies.  As we saw at the end of 2018 when the momentum players get off the train a +20% correction can occur in the blink of an eye.

A great example is Goodman group (GMG) which has fallen over 15% since July, compared to the ASX200 which has only fallen 3.3%.  Some selling may have  come from the staff as handcuffs have been removed from some issued capital but it’s a twitchy “yield play” sector that’s more likely the issue.

MM is generally nervous around the strong outperformers of 2019.

Goodman Group (GMG) Chart

President Trump has repeatedly self-promoted himself as primary reason for the strength of the US economy, expect this to intensify as the 2020 election slowly but surely looms large.  We have no doubt that he wants / needs a trade resolution sooner rather than later and combined with the Feds’ current rhetoric to act “appropriately to maintain economic expansion” makes MM comfortable to buy a 6% pullback if it unfolds in the weeks ahead.

Technically the Dow will generate a sell signal with a close below the 26,300 level or 2% lower.

MM believes the US Dow has a strong chance of testing 25,000 in the next 1-2 months which should represent excellent buying short-term.

US Dow Jones index Chart

At MM we’ve been looking for iron ore to bounce towards the 640/50 area, it went a touch further last Wednesday but we’ve now seen a quick 6% pullback, the obvious question being what next. At this stage we are neutral but a new trading range feels likely to evolve, our  current plan is to reduce our exposure to the sector into fresh September highs towards 700 while increasing the same position into a new swing low down towards 550.

MM currently sees iron ore as a sell ~700 and a buy ~550.

Iron Ore (CNY/Tonne) Chart

Last week we saw US 10-year bond yields bounce marginally while gold fell ~3.5% as can be seen on the chart below. The inverse correlation between the 2 has been very close over the last 12-months hence if you feel bond yields are bottoming don’t buy gold.

At MM we are staying with the trend for now regarding the recent moves as one to fade hence we are looking to re-enter the gold sector in the coming weeks.  Interestingly US 10-years plunged lower in September aided by former Chairman of the Federal Reserve Alan Greenspan saying he felt negative yields were coming to the US, a classic comment to help create a swing low.

MM believes the RBA & the US will cut interest rates at least once more in 2019/20.

US 10-year Bond Yield v Gold Chart

1 –  The MM Growth Portfolio

We have followed our plan outlined last week by increasing the MM Growth Portfolio cash position to an elevated 29%, hence we are  now patiently waiting to buy weakness  :

Every week we review our respective portfolios with special attention paid to positions that are feeling “wrong / tired etc”. Of the 15 stocks we current hold in the MM Growth Portfolio the one which currently fits this description the best is Chemicals / explosives business Orica (ORI).

Orica (ORI) $21.62

Our concern was triggered last week when Incitec  Pivot (IPL) was smacked over 10% to a fresh 1-year low following a poor trading update – there is some overlap between the 2 businesses with IPL manufacturing explosives, chemicals and fertilizers. The second chart below illustrates that over the last 5-years the 2 stocks had tracked each other closely, prior to late 2018 that is.

IPL actually bounced strongly from its aggressive sell-off on Monday but it did make us focus on ORI, a position that is currently showing us a nice 23% paper profit.

MM is monitoring our ORI position closely.

Orica (ORI) Chart

Orica (ORI) v Incitec Pivot (IPL) Chart

On the other side of the ledger as we wait for a potential correction in equities the “safe haven” gold stocks have  already commenced their own pullback as equity markets and bond yields bounce.

Gold Sector

Another 4% correction by the Australian gold stock and we may consider diving back into the sector – following Friday nights $US10/oz pullback in the precious metal the time feels nigh but we intend to be patient.

MM likes the Australian Gold sector  ~4% lower.

VanEck Gold ETGF (GDX.AU) Chart

Evolution Mining (EVN) Chart

2 MM Income Portfolio

Still no change last week, with our cash position sitting at 2% :

Bond yields experienced a small bounce last week but not enough to change our view / stance; until we see any indication that bond yields have bottomed MM sees no reason to significantly reduce our market exposure, or re-position / skew holdings towards higher rates i.e. why hold cash in today’s market when yield / income is your objective.

For those who missed it our thoughts around the portfolio were summed by recent video update:

As we mentioned last week the 2 stocks we are considering liquidating at present are CSR Ltd (CSR) and Whitehaven Coal (WHC) especially as we only now hold 2% in cash, the later is more of a concern technically.

*Watch for alerts.

CSR Ltd  (CSR) Chart

Whitehaven Coal (WHC) Chart

3 –  International Equites Portfolio

Last week we followed the plan to increase our short position to US stocks from 5% to 8% using the ProShares Short ETF (SH US) : .

The MM International Portfolio is now comprised of 72% in cash, 15% in stocks, 8% short the US index and 5% in a US gold stock (Barrick Gold).

Short-term we plan to be patient looking for a ~6% correction for US / global equities where we intend to cover our Short ETF and buy a number of quality global names – we’ve planned our trade lets hope we get to trade our plan!

*Watch for alerts.

ProShares Short S&P500 ETF (SH US) Chart

4 - MM Global ETF Portfolio

Last week we also increased our ProShares Short ETF (SH US) to 8% in the MM ETF Portfolio plus we allocated  5% to the iShares MSCI Global Silver Miners ETF (SLVP US) thus reducing our Cash position to 72%:

Our current thoughts:

1 – We believe US stocks are vulnerable to a deeper correction hence we have increased our ProShares short S&P500 (SH US) from 5% to 8%, ideally we are looking to take profit if stocks fall ~6%  next month.

2 – Averaging our long $A position: the little “Aussie  Battler” is holding up extremely well with so much recession talk around, hence we are getting closer by the day to averaging our long position i.e. buy AUDS AU.

3 – We are considering taking a contrarian bond position if we see bond yields make  fresh lows in the weeks ahead.

*Watch for alerts.

iShares MSCI Global Silver Miners ETF (SLVP US) Chart


MM has adopted a more conservative  / defensive position in our portfolio (s) around the 6600 area for the ASX200, now its time to wait and see if we are  correct.

US stocks will trigger another sell signal with the break below 26,300 by the  Dow.

*Watch for alerts.

Chart of the week.

The US NASDAQ often leads American stocks and at present its climbing a wall of worry in our opinion, a break below the rising trendline shown below is likely to see acceleration to the downside but until then the market is holding on by its fingernails.

MM will get a bearish confirmation “sell signal” on a break under the trendline illustrated below for the NASDAQ.

US NASDAQ Index Chart

Investment of the week.

This week Aristocrat (ALL) just won over from Domino’s (DMP) for this slot primarily because were already long DMP. The risk / reward is great but we only see 10-15% upside, buy ALL with stops below $29.50 – almost a trade.

MM likes ALL for fresh all-time highs.

Aristocrat (ALL) Chart

Trade of the week.

I cannot remember the last time MM vaguely suggested  buying AMP but my “Gut Feel” is the times close.  On Friday AMP Capital  announced their funds had hit $200bn, a great result for this part of the business which now contributes 35% of the  groups earnings.  If these guys are  kicking goals and AMP’s other  disasters cannot get much worse it may just be  time for a small allocation back into this embattled diversified financial business.

MM likes AMP with stops below $1.66, potentially exciting risk / reward.

AMP Ltd  (AMP) 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 7/09/2019

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