Market Matters Report / The Hickman Report 11th January 2014

By Market Matters 11 January 14

The Hickman Report 11th January 2014

We are in a stock pickers market

Market Matters Summary for 11th January 2014

  • US equities were flat last week, ignoring poor US Employment data on Friday night.
  • The ASX200 drifted lower, with the iron ore stocks hit very hard, led by FMG -11% and RIO -7%.
  • FOX announced plans to delist from the ASX causing a 7% fall in the stock; the domestic market contracts.
  • I remain bullish for 2014, especially the US, but do still believe that some decent corrections will occur in 2014.
  • We are in a stock pickers market, investors should have a shopping list of stocks ready to buy if / when they correct.
  • I will be watching ANN, BOQ, CWN, CSL, FMG, MFG, QBE, REA, RMD and SEK to buy at lower levels as outlined beneath – most of them benefit from offshore earnings. I believe patience is vital in 2014.
  • Remember in a bullish 2013, we witnessed corrections in the ASX200 12% / 8%, the banks an average of 16% and last week FMG fell 11% - approaching my buy levels.
  • Gold stocks are showing excellent signs of a bottom; I remain comfortable buying NCM.

 

The Overall Market

  • From mid-December, the ASX200 had low volume, explosive Christmas rally of 355 points (7.1%).
  • The catalyst was clearly the FOMC’s announcement of a gradual commencement to taper stimulus.
  • The US market's forecasted 8% correction has clearly not yet eventuated, but I remain comfortable holding +50% in cash.
  • I stress if / when we get this retracement, it’s an excellent buying opportunity for 2014 and not time to panic sell.
  • My work on correlations with clearer indices (e.g. NZ50 on chart 8) has the 4,800 level for the ASX200 flashing in big lights at some stage in 2014.
  • I am 50-50 whether the NZ Index and ASX200 will see fresh recent highs in Q1, 2014 prior to a decent retracement.


What Mattered Last Week

Last week was very quiet for the Index with a lot of market players on extended Christmas break, the ASX200 closed -38 points and the Dow was -33 points. However, we had some significant activity from individual equities:

  • Iron Ore stocks were smacked hard, following Vale’s (world’s largest Iron Ore producer) 21% fall since November.
  • I see further downside in coming weeks, led by RIO & FMG - which I will buy under $5.
  • FOX’s intention to delist from the ASX was the other standout last week, with the stock falling 6.8% on the news.
  • This would usually have me looking at the ASX share price, but I believe it’s a matter of time before a takeover / merger so I am leaving alone.
  • A point of note that after the new Liberal Government’s block of the GNC takeover, my view is the next one will be approved, quote “open for business”.


What Matters This Week

  • The ASX200 is likely to see increasing volumes as traders / brokers slowly implement plans for 2014.
  • After clearly witnessing a strong “Christmas rally,” what will 2014 bring us? At the moment I am 50-50 just here.
  1. The Santa Claus rally ends in early January.
  2. There are no clear buy, or sell, technical signals at present.
  3. Interestingly, when we consider that margin loans are at record levels in the US, advisor sentiment is at a 6 year high and bearish sentiment a 26 year low……the ingredient’s for a 8-10% correction are materialising.
  • My main focus in the coming week looks likely to be FMG. I will be accumulating under $5.


Trading for the coming Week

  • I am overall bullish for 2014, but a decent correction remains overdue in a number of markets.
  • Friday’s 1c rally in the $A may put a short term dampener on stocks with offshore earnings.
  • Technically, I can see a solid bounce in the $A and interest rates up in the US from current levels, implying traders getting concerned about the strength of the US recovery. This will help our long gold view.
  • I strongly believe patience will be the key in 2014 as this bull market slowly matures.
  • The gold sector had an awful 2013; gold stocks look as unloved as the retail sector was in June 2012 prior to the 65% rally. 
  • The NCM chart looks similar to the Spanish IBEX chart which has just rallied +70%.
  • I am now recommending buying long dated NCM calls for trading / option investors and NCM stock.
  • Investors should maintain a set plan for a correction if it unfolds. I have increased cash holdings and will simply buy my preferred equities into weakness. I have again refined these below:

1. ANN - $19
2. CWN -$15
3. BOQ - $11
4. FMG – under $5 = close.
5. MFG – under $10
6. REA - $35
7. RMD - $4.50
8. CSL - $60
9. QBE - $10.75
10. SEK - $11.50

N.B. I am remaining patient on entry price levels, as a lot of people are choosing these stocks with offshore earnings exposure for 2014, hence retracements can feed on themselves.


Market Matters’ View

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

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

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

Bearish: China (m), Copper (m), NZ (w), Retail Index (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 remain bullish on a monthly basis, but neutral on a daily basis. The path of least resistance was clearly up over the Christmas period as is so often the case, what comes next is now tricky. By mid-January a clearer picture should emerge.
I remain wary of the potential 8% correction for overseas markets and the weekly “rising wedge triple top” formation on chart 3 and 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 vulnerable to an 8% correction, 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.
The NASDAQ is the clearest index and the most bullish, I am 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 7000 level. Short term the Euro Stoxx looks set to test December lows.


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

 


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 and the Hang Seng is struggling after poor economic data from the mainland.


Chart 19 – Hang Seng Weekly Chart

 

Chart 20 – China Shanghai Composite Monthly Chart

 

Chart 21 – 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 – my view is that the next major move in rates is up, which will lead may to an underperformance from bank stocks. Overall, the major stock’s in the ASX200 remain clearly positive however, I have reduced exposure into recent strength, positioning myself for a potential pullback to buy back in – a number of stocks were very close prior to the Christmas rally. At this stage, I am going to apply some patience rather than jumping in at current levels.

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 a lot of sense. FMG and RIO last week illustrated what happens when everyone gets off the same horse.


Chart 22 – BHP Weekly Chart

 

Chart 23 – BHP Daily Chart

 

Chart 24 – Woodside (WPL) Monthly Chart

 

Chart 25 – RIO Weekly Chart

 


Chart 26 – FMG Weekly Chart

 

Chart 27 – Vale (US) Weekly Chart

 

Chart 28 – Newcrest Mining (NCM) Monthly Chart

 

Chart 29 – Regis Resources (RRL) Weekly 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– Australian Dollar (AUD) Weekly Chart

The $A is looking very heavy, the recent bounce was a little greater than anticipated breaking 97c, renewed weakness now looks likely with an ultimate target of 81-82c; 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 1180 lows first.

The amount of money tied up in gold ETF’s that did not exist pre 2004 remains a negative. However, having recently visited China, the only two investments that interest locals are property and gold…not reflected by the price yet.

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 51 – Gold Monthly Chart

 

Chart 52 – 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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