Market Matters Report / The Hickman Report 1 February 2014

By Market Matters 01 February 14

The Hickman Report 1 February 2014

Emerging markets continue to concern

Market Matters Summary for Saturday 1st February 2014

  • Emerging markets continue to concern equity markets & the long awaited 8% correction appears well underway.
  • The Dow fell +950 points in January & the ASX200 193 points. I expect more in February for a buying opportunity.
  • Statistically, we should beware of 2014, 89% of the time since 1950 the Dow has followed January for the year.
  • Also, the Dow closing in January below December’s closing low reinforces the above negativity. 
  • Overall, this adds weight to my view of a stock picker’s year ahead and potential ongoing gold strength.
  • Domestically, the banks are leading the decline e.g. CBA -$4.27 & ANZ - $2.32 a trend I expect for most of 2014.
  • I reiterate, I am net bullish for 2014, so don’t panic, set your levels and buy this retracement.
  • Banks are getting very interesting after +10% correction in some cases, they yield approx. 6% before franking.
  • I am watching ANN, ANZ, BOQ, CBA, CWN, CSL, FMG, MFG, REA, RMD and SEK to buy at lower levels as outlined beneath – most of them benefit from offshore earnings. I believe opportunities are very close at hand.
  • Again in 2014, be prepared to take all or part profit when stocks hit targets e.g. Crown at $18 recently.
  • After less than one month, my view that buying banks and closing one’s eyes is NOT the way for 2014 is looking confirmed. A more active approach will be required to maximize returns as interest rates rise overseas.
  • Gold stocks continue to show excellent signs of a bottom; I remain comfortable buying any weakness in NCM, but $10 is a clear psychological resistance & a sharp move in gold I feel is required to convince the non-believers.

 

What Mattered Last Week

Last month was explosive on the downside for equities, led by the Dow falling 5%, the ASX200 3%, while Gold rallied 5% and the VIX 45%.

  • As discussed, markets have quickly switched focus to a slowing China and panic around emerging markets over the last 2 weeks.
  • It’s likely that the recent Fed Tapering has resulted in currently less support for equities compared to the last few years.
  • However, putting things in perspective after a rally of 156% in the Dow since 2009 a 5% correction is healthy.
  • The Iron Ore stocks space that I remain positive traded well with FMG +10c & MGX +1c while overall both equities and the Iron Price fell.
  • Gold stocks had a solid week, but I feel a surge over $1,300 is required to maintain this outperformance short term.
  • Again, the Banking Sector -1.9%, Telstra -0.8%, Insurance -2.5% & Retail -3.1% confirming yield is not in focus, this ties in with my view for 2014.


What Matters This Week

  • After more Friday weakness on Wall Street, opportunities are looking close at hand, but I believe the selloff has further to go, targeting 4% lower.
  • It’s unlikely that concerns over emerging markets and China will dissipate within quickly, with US equities at elevated levels, but when they do it will likely lead to a dramatic relief rally for global equities.
  • The ASX200 as an index is tricky with yield sectors struggling, but the resources space outperforming, the materials sector was positive last week.
  • Also, the “abc” target is still looming at 4,950 for the ASX200 in the first quarter of 2014.
  • Technically, the banks will lead this decline, but I believe buyers will appear, as with a little weakness, most of the banks will be offering over 6% yield and over 8% after grossing up for franking credits. Clearly attractive compared to term deposits well under 4% prior to being tax.
  • I remain a keen buyer of the following banks around levels indicated: ANZ $29.50, BOQ $11.10 and CBA $71.50.
  • While price action is likely to remain choppy locally, I see no reason to consider buying strength, only on weakness with US Indices looking to trade 4% lower.


Trading for the coming Week

  • I remain overall bullish for 2014, especially the US indices, the current correction is likely to produce excellent buying opportunities in a number of different sectors over coming weeks / month.
  • I reiterate strongly that I am of the opinion that patience will be the key in 2014, as this bull market slowly matures.
  • The gold sector continues to unfold as anticipated and I remain a happy buyer of weakness in NCM and SLR. A clear breach 0f $1,300/oz. feels required to convince the none believers.
  • The NCM chart looks similar to the Spanish IBEX chart, which has just rallied +70%. My NCM target remains at $14.
  • I reiterate, investors should maintain a set plan for this correction and profit targets, as this choppy year unfolds. I have decent cash holdings, even after buying some FMG recently and will simply buy my preferred equities into weakness. I have again refined these areas below:
  1. ANN - $19
  2. ANZ - $29.50
  3. CBA - $71.50
  4. CWN -$18 & $16.
  5. BOQ - $11
  6. FMG – over $6 & under $5.
  7. MFG – under $10
  8. REA - $45
  9. RMD - $4.50
  10. CSL - $60
  11. SEK - $11.50

N.B. I am remaining patient on buying / selling price levels, a lot of people are choosing the same stocks with offshore earnings exposure for 2014-5, hence retracements can feed on themselves as we are seeing with Crown (CWN) at present.

A list of some sleepers are below, some have already started to show signs of life, we will look to continually add to this list over coming weeks:

  • AWC, CSS, FXJ, KCN, KDL, LEI, OZL, PEN, PDN, & SLR – I own the ones underlined.


Market Matters’ View at a glance

The below views are illustrated in detail by the charts beneath.

Bullish: ANN(m), BOQ (m), CBA (m), CSL (m), Dow (m), FMG (w), FTSE (w), Gold (w), IBEX (m), NASDAQ (m), NCM (w), Nikkei (m), REA (w), SEK (m), S&P (m), SUN (m), & WOW (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (w), BEN (m), BHP (d) & (w), CWN (m), Hang Seng (w), NAB (w), NZ (w), NCM (m), QBE (m), RIO (w), STOXX (w), WBC (w) & WES (w).

Bearish: ASX200 (d), Australian Banks (d), China (m), Copper (m), IBEX (w), Retail Index (w), S&P (w) & WPL (m).

  • Time Frames - (d) = daily, (w) = weekly and (m) = monthly.

e.g. A (d) implies I am bullish on a daily basis but a (m) would mean I am bearish on a monthly / longer term basis.


Australian ASX200

I am bullish on a monthly basis. but bearish on both a daily / weekly basis. I remain negative the ASX200 while the ASX200 is under 5,200 targeting 5,050 / 4,950.

I remain wary of the potential 8% correction for overseas markets and the weekly “rising wedge triple top” formation on chart 3, plus the close correlation with the NZ market which is looking for a 10% correction in 2014.


Chart 1 – ASX200 Monthly Chart

 

Chart 2 – ASX200 Weekly Chart

 

Chart 3 – ASX200 Weekly Chart

 

Chart 4 – ASX200 Daily Chart

 

Chart 5 – SPI (Share Price Index) Futures 60 mins Chart

 

Chart 6 – Volatility Index VIX Weekly Chart

 

Chart 7 – New Zealand 50 Index Monthly Chart

 

Chart 8 – ASX200 v New Zealand 50 Index Monthly Chart

 


American Equities

The American indices look to be correcting after the Dow has reached my target areas. However, weakness in the US should be aggressively bought as the monthly set ups and growing economies are overall bullish – another 4% correction is likely.
The NASDAQ (and DAX) is the clearest index and the most bullish, I remain an aggressive buyer of any 200+ point correction.


Chart 9 – Dow Jones Index Monthly Chart

 

Chart 10 – Dow Jones Index Daily Chart

 

Chart 11 – S&P 500 Monthly Chart

 

Chart 12 – S&P 500 Weekly Chart

 

Chart 13 – Russell 3000 Index Weekly Chart

 

Chart 14 – NASDAQ Monthly Chart

 


European Indices

The European indices now look net bullish for 2014, with the FTSE in a classic 3-4 consolidation prior to an assault on the 7,000 level. The Dax looks very bullish and similar to the NASDAQ, any 900 point retracement should be bought.


Chart 15 – Euro Stoxx 50 Weekly Chart

 

Chart 16 – FTSE Weekly Chart

 

Chart 17 – Spanish IBEX 35 Monthly Chart

 

Chart 18 – Spanish IBEX 35 Weekly Chart

 

Chart 19 – German Dax Monthly Chart

 

Asian Indices

Asian indices remain net positive, but messy short term. The Nikkei continues to be volatile and is now threatening a decent correction.
The China Index remains bearish long term and the Hang Seng continues to struggle after poor economic data from the mainland.


Chart 20 – Hang Seng Weekly Chart

 

Chart 21 – China Shanghai Composite Monthly Chart

 

Chart 22 – Japanese Nikkei 225 Monthly Chart

 

Australian Stocks

Buying sustainable yield and selling XJO calls has been a logical strategy over recent years however, the risk of rising bond yields has resulted in me now recommending a more balanced portfolio, after being heavily weighted to the banks – my view is that the next major move in rates is up, which will lead may to an underperformance from bank / yield stocks.

I am a comfortable buyer of bank stocks into this +10% correction and writing stock specific calls.

I am a little concerned that everybody is calling stocks with exposure to overseas earnings to outperform...how crowded is this trade? Hence being fussy on price makes total sense.


Chart 23 – BHP Weekly Chart

 

Chart 24 – BHP Daily Chart

 

Chart 25 – Woodside (WPL) Monthly Chart

 

Chart 26 – RIO Weekly Chart

 

Chart 27 – FMG Weekly Chart

 

Chart 28 – Vale (US) Weekly Chart

 

Chart 29 – Newcrest Mining (NCM) Monthly Chart

 

Chart 30 – Australian Retail Index Monthly Chart

 

Chart 31 – CBA Monthly Chart

 

Chart 32 – ANZ Monthly Chart

 

Chart 33 – WBC Weekly Chart

 

Chart 34 – NAB Weekly Chart

 

Chart 35 – Bendigo Bank (BEN) Monthly Chart

 

Chart 36 – Bank of Queensland (BOQ) Weekly Chart

 

Chart 37 – AMP Weekly Chart

 

Chart 38 – Suncorp Group (SUN) Weekly Chart

 

Chart 39 – Insurance Australia (IAG) Monthly Chart

 

Chart 40 – QBE Insurance Monthly Chart



Chart 41 – Magellan Group (MFG) Weekly Chart

 

Chart 42 – Wesfarmers Ltd (WES) Weekly Chart

 

Chart 43 – Woolworths Ltd (WOW) Monthly Chart

 

Chart 44 – Seek Ltd (SEK) Monthly Chart

 

Chart 45 – Real Estate Australia Group Ltd (REA) Monthly Chart

 

Chart 46 – Crown Resorts Ltd (CWN) Monthly Chart

 

Chart 47– Ansell Ltd (ANN) Monthly Chart

 

Chart 48– CSL Ltd (CSL) Monthly Chart

 

Chart 49– Resmed (RMD) Weekly Chart

 

Chart 50 Fairfax Media FXJ Monthly Chart



Chart 51– Australian Dollar (AUD) Weekly Chart

The $A is looking very heavy, October’s bounce was a little greater than anticipated breaking 97c, renewed weakness now looks to be unfolding with an ultimate target of 80-82c; clearly benefiting stocks with offshore earnings.




Commodities

On a monthly basis, gold remains 50-50, however, a strong rally towards the 1,400 area is likely in 2014. The question remains as to whether we spike under 1,180 lows first.

The amount of money tied up in gold ETF’s that did not exist pre 2004 remains a negative. However, having visited China at the end of 2013, the only two investments that interest locals are property (a lot in Sydney!) and gold.

Copper remains negative on a longer term basis, a very similar chart pattern to Newcrest Mining and unfortunately we all saw what happened there.


Chart 52 – Gold Monthly Chart

 

Chart 53 – Copper Monthly Chart

 

 

Please note this is my personal TECHNICAL opinion of markets and "General Advice" taking no account of individual’s circumstances.

Have a great week,

Shawn Hickman



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