Morning Report / Morning Report Tuesday 24 March 2015

By Market Matters 24 March 15

Morning Report Tuesday 24 March 2015

Morning Report Tuesday 24 March 2015

Please see our Market Matters Weekly video Update


Further evidence that we may see a bounce in Oil & Iron Ore stocks

Rarely in the 28 years since I entered the financial markets have I seen more negativity directed into two specific sectors than Oil and Iron Ore. However, I believe we are actually in the middle of good countertrend rallies in some of these stocks over coming weeks. When all analysts are talking the same story, especially after being incredibly wrong for the last year, it’s time to consider the alternative view again. I often refer to classic Warren Buffett quotes, but this again seems an optimum time.

• “We simply attempt to be fearful when others are greedy and greedy when others are fearful”. –Warren Buffett.

Firstly, let’s consider what happened with Crude Oil last night. The Saudis have re-established some market share by simply pumping more oil and making it clear they would increase production to satisfy any increasing demand. The Saudis refuse to cut production as their goal is to smash the new American Shale Oil business, before it really gets off the ground. However, Crude Oil was up 1.7% on this apparent bad news, a very bullish signal – chart 1.

1. Woodside Petroleum (WPL) – Technically I am positive, targeting the $38 region, a ~7% rally – see chart 2.
2. Santos (STO) – Technically I am positive, targeting the $8.50 region, ~ 16% rally – see chart 3.

Secondly, let’s look at Iron Ore/Fortescue Mining (FMG), both of which have been hammered over recent months/years. There is definitely no bottom in sight for Iron Ore, but a rest to the decline “feels” due. At current prices, FMG are making ~$10/tonne depending on which analyst you believe, but this is not the potential key to a sharp rally in FMG. The two large wildcards with FMG are the massive short position +20% of available stock and a potential strategic investor that would alleviate any debt concerns, step up Glencore?

1. Fortescue Metals (FMG) – Technically I am positive, targeting a rally over $2.50, ~ a 25% rally – see chart 5.


Last November I made a fun and well publicised wager with a colleague of mine, that Newcrest would outperform CBA over the following 2 months - the result was I received a delightful Rockpool steak last week.

I now believe Fortescue FMG (plus Woodside and Santos) will outperform CBA over the next 1-2 months.

*Please note this is a bit of fun, not for investment decisions.

Summary

This report is not purely for the traders, but also for investors looking for an area to exit poor positions in the Oil and Iron Ore sectors.

• Traders can take long positions in FMG, WPL and / or STO with stops under last week’s lows. Targets as specified above.

1 Crude Oil Weekly Chart

2 Woodside Petroleum (WPL) Weekly Chart

3 Santos Ltd (STO) Weekly Chart

4 Iron Ore Monthly Chart

5 Fortescue Metals (FMG) Weekly Chart

 

Overnight Market Matters Wrap:

• The US Equity markets failed to hold positive territory overnight, with the DOW ending the day down 12 points (-0.1%) at 18,116 and the S&P 500 down 4 points (-0.2%) at 2,104.
• In the commodities space, oil is gaining some of its lustre back, rallying 1.9% to US$47.45 while gold closed up 0.6% at US$1,189.3/oz.
• The ASX200 is expected to open slightly lower, around 5950 this morning, with the commodities sector likely to outperform the broader market.

The Numbers that Matter


June Share Price Index -2, or (0.0%) to 5,955
AS200 (previous session) 5,956

AUD/USD 0.7878

Dow Jones -12, or (-0.1%) to 18,116
S&P 500 -4, or (-0.2%) to 2,104
NASDAQ 100 -13, or (-0.3%) to 4,446

London FTSE +15, or (+0.2%) to 7,038
German DAX -144, or (-1.2%) to 11,896

Gold Spot +$6.67, or (+0.6%) to $1,189.3/oz
Nymex Crude +$0.88, or (+1.9%) to $47.45/bbl
Iron Ore +$0.15, or (+0.3%) to $54.81/t
Copper Spot +$3.30, or (+1.2%) to $280.80/lbs.

BHP closing price in the U.S. +$0.36, or (+1.1%) to $31.36


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 24/3/2015. 8.40AM.
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