Market Matters Report / Market Matters Weekend Report Sunday 17th April 2016

By Market Matters 17 April 16

Market Matters Weekend Report Sunday 17th April 2016

Market Matters Weekend Report

 

Overview
 
Last week felt all about Australia playing massive catch up to major world markets, especially the US. The ASX200 rallied a very impressive 4.5% with gains across the board, including a noticeable +19% surge by BHP. Conversely the US S&P500 only managed to advance 1.6%, into the 2100 resistance area as we expected BUT the local explosion caught most people by surprise including ourselves.
 
In hindsight it feels like that the fund managers / traders that have not embraced the recent rally by world equities were looking for somewhere "cheap" to allocate some of their cash and Australia came up on the radar especially with the $A now showing some backbone.
We received a number of enquiries from trading subscribers asking if it was time to go short but zero from people looking to buy....a definite sign!
 

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More importantly, moving on, let's keep focused on what we believe comes next:
 
Short term.
 

Our preferred scenario for the US stock market is  a~3% correction early next week prior to further gains towards all time highs. The result of this weekend's oil producers meeting in Doha is likely to have a significant influence on optimism surrounding equities early in the week.
 
The local ASX200 rallied every day last week without a pullback as asset allocation / short covering scrambled over each other to buy stocks, statistically that is unlikely to be repeated. We are now keen buyers of the S&P500 around 2030 and the ASX200 around 5100 for the short term.
 
Medium term.
 


 
 
We remain committed to our long term view that US equities, led by the S&P500, will make fresh 2016 highs in coming weeks / months. However for the S&P500 that target is only 2.6% higher, the question is how far do we believe it will go.....lets firstly look at other major US indices and how far they need to rally to make fresh all time highs:
 
NASDAQ +4.3%, Dow Jones 2.5%, Russell 3000 4.2%, Russell 2000 14.6% and the NYSE Composite Index 8.7%.
 
While we are not convinced that all the US Indices will make new all time highs we are keeping a close eye on the S&P500 and NASDAQ. Our ideal target for the NASDAQ is around the 5000 area ~10% higher prior to our forecasted +25% correction.
 
We are trying to make  a couple of important points here:
 
1.       Blow off tops (if we are correct) often go further than people expect....another 5% for the S&P500 looks likely.

2.       Getting short (traders) before major corrections can be extremely tough as markets often remain strong for longer than anticipated, refer to 2015 before the 14% correction.

3.       In today's market remember how many people are short / underweight equities...their logic we understand BUT the recipe is in place for a solid "squeeze".

4.       However slowly increasing cash / selling equities into an anticipated top is far easier and we believe a better plan for most investors.

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Recently the US stock markets price action has been far clearer than our domestic market, that's dominated by 4 banks, but Australia is where we focus so let's revert back to Australia, see below.
 
Standout technical chart of the week
 
Last week's explosive move by local stocks now targets 5250 this month and potentially 5350 in May. Our recommended portfolio cash position is higher than is ideal after last week's rally, standing at over 30%. We are now on the lookout for stocks with at least 10% upside in coming weeks / month.
Note we have not changed our medium / long term view that unfortunately targets another test of the 4000 area.
 
Summary
 
It's simple higher before lower......we now see another 45% higher in equities prior to a decent correction.

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What Matters this week
 
The ASX200 looks likely to open basically unchanged on Monday after a sideways night on Wall Street.

Potential Investing opportunities for the coming week



 
We are very wary of insurance stocks and QBE in particular but technically the stock looks excellent with stops under $10.85.

Westfield has consolidated for more than 12 months and looks poised for a sharp rally up towards the $11 area.

Potential Trading opportunities for the coming week

We are buyers of any 5060 point pullback for the ASX200, ideally early in week.

Portfolio / Trade Holdings
 
The Market Matters
 
https://www.marketmatters.com.au/blog/post/marketmattersstockportfolio5april2016
 
Cash position now down to ~34% after Bellamys investment but still higher than ideal for the current market position.
 

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Australian ASX200
 
Chart 1 – ASX200 Monthly Chart
 

Chart 2 – ASX200 Weekly Chart
 

Chart 3 – ASX200 Daily Chart
 

Chart 4 SPI (Share Price Index) Futures 60 mins Chart
 

Chart 5a ASX200 Banking Index Monthly Chart
 

Chart 5b ASX200 Financials Index (excl. REIT's) Weekly Chart
 

Chart 6  Volatility Index VIX Weekly Chart
 

Chart 7a – The US 10year Interest Rate Monthly Chart
 

Chart 7b – The German 2year Interest Rate Monthly Chart
 

American Equities

The American indices remain bullish targeting fresh all time highs in 2016, a break under this month's lows is required to turn this view negative / neutral.

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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 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 are far trickier and less bullish than their American counterparts.....perhaps the potential exit of the UK from Europe is causing understandable concern but strangely the FTSE looks the best index!

Chart 15 – Euro Stoxx 50 Index Weekly 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

Asian indices have regained some stability and the recent strength of other world indices. However, the Emerging Markets Index has reached our target area and looks poised to pullback.

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Chart 19 – Hang Seng Weekly Chart
 

Chart 20 – China Shanghai Composite Index Monthly Chart
 

Chart 21a – Emerging Markets MSCI ETF Weekly Chart
 

Chart 22 – Japanese Nikkei 225 Index Monthly Chart
 

Australian Stocks

Resource stocks continue to enjoy the strong countertrend rally that we anticipated. Banks rallied strongly last week as investors went searching for "cheap" stocks, this has improved our short term outlook for local equities.

Chart 23 – BHP Billiton (US) Monthly Chart
 

Chart 24 – BHP Billiton (BHP) Weekly Chart
 

Chart 25a – Woodside Petroleum (WPL) Monthly Chart
 

Chart 25b – Santos (STO) Weekly Chart
 

Chart 25c – Oil Search (OSH) Weekly Chart
 

Chart 26 – RIO Tinto Ltd (RIO) Weekly Chart
 

Chart 27 – Fortescue Metals (FMG) 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) Monthly Chart
 

Chart 33 – ANZ Bank (ANZ) Monthly Chart
 

Chart 34 – Westpac Bank (WBC) Weekly Chart
 

Chart 35 – National Australia Bank (NAB) Weekly Char

 

Chart 36 – Macquarie Group (MQG) Monthly Chart
 

Chart 37a – Bank of Queensland (BOQ) Monthly Chart
 

Chart 37b – Bendigo & Adelaide Bank (BEN) Monthly Chart
 

Chart 38a – AMP Ltd (AMP) Weekly Chart 
 

Chart 38b – Henderson Group (HGG) Daily Chart 
 

Chart 39 – Challenger Financial (CGF) Monthly 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) Quarterly Chart
 

Chart 45a – Seek Ltd (SEK) Monthly Chart
 

Chart 45b – REA Group Quarterly 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 55 – Crown Resorts (CWN) Monthly Chart
 

Chart 56– Bellamys (BAL) Weekly Chart
 

Chart 57– JB Hifi (JBH) Monthly Chart
 

Chart 58– Harvey Norman (HVN) Monthly Chart
 

Chart 59a– Australian Dollar (AUD) Monthly Chart

 The $A bounce may easily reach the 80c area prior likely further weakness.
 

Chart 59b– The $US Index Monthly Chart
 

Commodities

Gold has recently rallied very well from multi year lows but may need poor news from equities to kick much higher as the recent weakness in the $US has had limited impact which should be a concern for the bulls.

Copper remains in a downtrend on a longer term basis which is a very similar chart pattern to Newcrest Mining (NCM) and, unfortunately, we have all seen what happened there.

Crude Oil has rallied very strongly from panic sell off in January but short term its now in the $US40/barrel resistance area.

Iron Ore exploded last week achieving our $US60/tonne target, we are now neutral.

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Chart 60 – Gold Monthly Chart
 

Chart 61 – Copper Monthly Chart
 

Chart 62 – Crude Oil Monthly Chart
 

Chart 63 – Iron Ore Monthly Chart

 

 

This report contains factual information and does not constitute financial advice. The information is not intended to imply any recommendation or opinion about any financial product.

Regards,
The Market Matters Team
Level 12 2834 O'Connell St
Sydney NSW 2000

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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 17/4/2016 9:00am
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