Market Matters Report / The Hickman Report 12 April 2014

By Market Matters 12 April 14

The Hickman Report 12 April 2014

The Hickman Report 12 April 2014

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Market Matters Summary for Saturday 12th April 2014

  • The ASX200 gained 0.1% last week but the Dow fell 2.4% & NASDAQ 2.6% demonstrating we aren’t a Tech. Index.
  • The NASDAQ has now aggressively corrected 7.9% and yet ANZ & Westpac banks hit all-time highs on Thursday.
  • This demonstrates why I look at statistics very closely, the big 4 banks grow on average 3.2% in April since 1997 (www.probabilitytrader.com) – the banking index is only up 0.4% so far this April.
  • Also of interest, 80% of the time after a daily +2% fall for the S&P 500 in April the falls are reversed by month end.
  • “Three of the Four” big banks report soon. I believe they will be strong into these reports and potentially the dividends, as profits are revised up BUT then it’s time to sell as the market focuses on rising bond yields.
  • The markets are currently focusing on lofty valuations leading to significant profit taking / corrections in recent great performers e.g. Carsales -17.8%, Magellan -15.7%, Realestate.com -16.2%, Seek -14.5% & Vocus -11.2%.
  • I am happy to buy this correction BUT I will not when it becomes a yield correction as I believe it will be ugly. 
  • With interest rates rising, I believe investors MUST prepare to diverse out of banks or suffer underperformance.
  • Banks are 50% of a typical Australian private client portfolio so what comes next is critical to local investors.
  • I will be looking to switch out of at least one bank holding, and increase Suncorp (SUN) / cash in coming weeks, maybe prior to dividends. SUN pays a higher dividend than banks and benefits income wise from higher rates.
  • I am also likely to sell / reduce ANZ and look to buy NAB into weakness. Cyclically I prefer Europe to Asia.
  • In the coming few weeks, I am likely to maintain my core positions and watch incase the above unfolds early.
  • With rates rising and resources unclear, investors will need secular growth stories for 2014. I am likely to move into a majority cash position if the market unfolds as I anticipate above.

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What Mattered Last Week

Last week was like a mini tech / value wreck, with investors fleeing for the exit door of stocks priced for exceptional growth. The NASDAQ has now corrected 7.9% since early March, yet the ASX200 made fresh 6 year highs on Thursday.

In my 26 years in the market, I never have witnessed more critical stock selection, see below some year to date winners & losers:

  • Winners: AMP +17.1%, Boral +23.5%, David Jones +30.1%, Leighton +24.8%, Newcrest +38%, Seek +21.4%, Westpac +7%, Woolworths +6.5%.
  • Losers: Bendigo Banks -5.3%, Coca- Cola -19%, FMG -9.1%, IAG 4.6%, Metcash -15.8%, Myers -19%, RIO -6%.

On the performance front, the below stocks caught my eye last week:

  • Positive Performance from – ANZ +1.4%, Boral +3%, David Jones 23.2%, JB Hifi +4.8%, Newcrest +8.3% & Wesfarmers +2.4%.
  • Negative Performance from - Car Sales -3.%, Coca Cola -12.2%, CSL -2.9%, Crown-3.7%, Macquarie -2.7%, Myer -4.7%, REA Group -8.3% & Seek -5.1%.
  1. Last week was more active as we sold BOQ and bought Seek.
  2. It’s remains hard predicting the ASX200 recently and hence, I am focusing more on individual equities.


What Matters this week

  • All action will again be on the “highly valued” stocks that are priced for excellent growth after Friday night’s 1.2% fall on the NASDAQ.
  • I am 50-50 whether the 297 point correction in the NASDAQ is close to complete or we will fall closer to 400 points, like the previous two corrections since the bull market began back in 2008 – note this is now only another 100 points, or 2.9%.
  • I remain bullish going forward and am not scarred by the increasing number of “Doomsday Merchants” getting published at present.
  • Let’s look at 2 main basic fundamentals at play: the European and US economies are improving (China always an obvious wildcard) BUT a number of stocks are fully / overpriced being aided by an abundance of “cheap money”.
  • My estimate where the overall market gives great value is around 5050 lows of 2014 however panic selling in individual sectors will provide opportunities for those not scarred of trading / investing against the crowd – see below.
  • Being part in cash awaiting for these situations I believe is the way ahead in 2014/2015.

 

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Trading for the coming week

  • Buy Seek (SEK) around $16 with stops under $13.50.
  • Buy Realestate.com (REA) around $44.50 with stops under $42.50 and target of $53.
  • Buy Fairfax under 90c with stops under 84c and a target over $1.50.
  • Buy JB Hifi (JBH) around $20.30, target at $24 with stops under $19.50.
  • Buy Resmed (RMD) under $4.40 with stops under $3.95 and a target of $6.
  • Buy Vocus (VOC) around $4.35 with stops under $3.70 and a target of $5.25.
  • Sell Magellan (MFG) on bounces towards $13 with a target of $10.
  • In general, take profit on bank positions if they rally 3% for April.

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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 months:

  • AWC, CSS, FXJ, KCN, KDL, LEI, OZL & PEN. – 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), Australian Banks (d), CBA (m), CSL (m), CWN (m), Dow (m), Fairfax (m), FTSE (w), IBEX (m), JBH (w), NASDAQ (m), Nikkei (m), REA (w), RMD (w), SEK (m), S&P (m), SUN (m) & Vocus (w).

Neutral: AMP (w), ASX200 (d), Australian Banks (m), BEN (m), BHP (w), BOQ (w), Hang Seng (w), FMG (w), IBEX (w), NZ (w), QBE (m), Retail Index (w), RIO (w), S&P (w) STOXX (w) & WES (w).

Bearish: Banks (w), BHP (m), China (m), Copper (m), Gold (w), MFG (w), NCM (m), WOW (m) & 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 mildly bullish on a monthly basis but I envisage a choppy year ahead.

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 – ASX200 v NZX50 Index Monthly Chart

 

Chart 8 – New Zealand 50 Index Monthly Chart

 


American Equities

The American indices reached my sell levels in early March and since then the NASDAQ has fallen 7.9%, close to exceeding my targets.

The NASDAQ and DAX are the clearest indices and both remain bullish longer term, I still remain positive the NASDAQ, ideally targeting 3,800 area into May prior to a +10% correction, but the “easy money” has gone.

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 – NASDAQ Monthly Chart

 

Chart 14 – NASDAQ Weekly Chart

 


European Indices

The European indices still 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, the recent 881 point retracement appears over and an assault on fresh highs for 2014 are close at hand.

Chart 15 – Euro Stoxx 50 Weekly Chart

 

Chart 16 – FTSE Weekly Chart

 

Chart 17 – Spanish IBEX Monthly Chart

 

Chart 18 – Spanish IBEX 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 with another +17% downside.

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 (NZ recently), which will lead to an eventual underperformance from bank stocks – there is no sign of this at present.

  • I am recommending switching at least one bank holding to SUN soon, or after May dividends.
  • Plus, NAB will be my preferred bank at some stage in coming months.

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 – JB Hifi (JBH) Weekly Chart

 

Chart 31 – CBA Monthly Chart

 

Chart 32 – ANZ Bank (ANZ) Monthly Chart

 

Chart 33 – Westpac Bank (WBC) Weekly Chart

 

Chart 34 – National Bank (NAB) daily 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 – Vocus Communications (VOC) Weekly Chart

 

Chart 47 – 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 choppy and is currently having a good bounce, with the potential to challenge the 97c area.

 

Commodities

Gold looks to have almost completed a strong rally towards the 1,400 area. Next stop 1100?

Copper remains very negative on a longer term basis, a very similar chart pattern to Newcrest Mining (NCM) 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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