Market Matters Report / The Hickman Report 14th December 2013

By Market Matters 14 December 13

The Hickman Report 14th December 2013

I remain bearish the ASX200 short term

After recent feedback from a number of readers, I have added a summary section. Thanks for the feedback, please keep them coming!


Market Matters Summary for 14th December 2013

  • I remain bearish the ASX200 short term with a strong possibility of the 4800 area being tested.
  • I am bullish for 2014 after this significant retracement, targeting the 5,500 area.
  • Subsequently, investors should have a shopping list of stocks ready to buy if we fall well under 5,000.
  • I will be watching BOQ, CWN, FOX, FMG, REA, SEK and WOW to buy at lower levels.
  • Also, the Dow looks set to fall another 900 points (5.7%) and New Zealand 260 points (5.5%).


The Overall Market

 

  • An international Hedge Fund manager this week said to a local FX trader, "I would rather buy Kazakhstan than Australia".
  • The current significant underperformance in ASX200 -6.6% vs. Dow -2.6% is likely currency and sentiment driven.
  • Due to our economy weakening whilst others are improving, both investors / traders believe the $A is going well under 90c.
  • Remember in May/June when the $A fell 10c, the domestic banks were savaged with the ASX200 Bank Index falling -15.7%.
  • The sentiment story is simple to explain - GNC takeover blocked, Holden leaving Oz, large stock downgrades (WOR, QAN, QBE, FGE), average IPO's (Nine Ent. -8.8%), weak GDP & a budget this week already flagged to be poor.
  • The Dow's forecasted 8% correction appears to be unfolding but not yet confirmed.
  • I stress if we get this retracement, it’s an excellent buying opportunity and not time to panic sell.
  • The US economic figures remain very strong unlike Australia, which implies that taper concerns will be the likely cause of any correction.
  • 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.
  • The weakening $A will keep overseas investors away short term, they focus on net purchase cost not better profitability.
  • Also, we have unfortunately become an ideal vehicle for overseas short sellers with the currency helping their positions.


What Mattered Last Week

Last week was again very weak for the ASX200, falling 180 points at one stage by Thursday. The theme was consistent - large stock downgrades, poor domestic economic fundamentals, weakening $A and average IPO performance.

  • QBE fell 31% as investors totally lost confidence in management after the 4th consecutive year of missing profit forecasts.
  • Oz Minerals (OZL) fell 32% on Wednesday after a company update but unlike most recent downgrades the stock bounced.
  • The retail sector again fell (MYR -8.7% & HVN -4.8%) as the Australian economy is clearly out of flavour.
  • The banks all fell last week in line with the falling $A. CBA-1.3% and ANZ -2.4%.
  • Gold stocks proved interesting, rallying even after a $30 fall in gold on Thursday. NCM +2.2%, RRL +3.9% & OGC unch.


What Matters This Week

  • The ASX200 may again be driven by specific stock news & strong seasonals as bank dividends hit the market this week.
  • This week, shareholders will receive $8.6 billion in dividends explaining why the ASX200 has rallied 85% of time from this period into January (a significant portion of this will be absorbed by the IPO’s).
  • However, the ASX200 is clearly in a downtrend and any 100-150 point Christmas rally should be sold.
  • I am net bearish, but wondering if we will consolidate this week with dividends hitting the market.
  • I will remain net negative the ASX200 while we are below 5,285
  • If we cannot rally this week with the dividends hitting the market, prospects are ominous.


Trading for the coming Week

  • I will remain bearish sub 5285, but a break off here will turn me neutral not positive.
  • I anticipate a choppy week between 5,000 and 5,175, but surprises occur with the trend, which is down.
  • The gold sector has had an awful year; gold stocks look as unloved as the retail sector was in June 2012 prior to a 65% rally. I am buying slowly now while everybody is selling, looking for a corrective rally minimum, perhaps as equities correct.
  • I am recommending buying long dated NCM calls for trading / optioning investors.
  • Investors should have a set plan for the correction as it unfolds. I have increased cash holdings and will simply buy my preferred equities into weakness. I have refined these below: 
                BOQ ($10.80-11.00), CWN ($15), FOX ($31), FMG ($4.85-5.15), SEK ($11.50), REA ($35) and WOW ($31-32).


Market Matters’ View

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

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

Neutral: AMP (w), Australian Banks (w), BEN (m), BHP (w), Gold (m), NCM (m), QBE (m), RIO (w), STOXX (w).

Bearish: ASX200 (d), BHP (d), China (m), Copper (m), NZ (w), NAB (w), Retail Index (w), WBC (w), WES (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 bearish on a weekly basis. Most people were too afraid to buy closer to 5,000 because of media coverage surrounding the US debt default situation – then fear of missing out emerged and 5,450 was quickly reached. Prior to November, every retracement reached hungry buyers, but this is definitely not occurring now. The path of least resistance is down at present. Plus, I am very wary of the potential 8% correction for overseas markets and the weekly “rising wedge triple top” formation on chart 3.











American Equities

The American indices look very vulnerable to an 8% correction; the Dow is sitting right on support. Weakness in the US next week is likely to follow through hard and fast.


 

 

 

 

 

 

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.






Asian Indices

Asian indices remain net positive but messy short term. The Nikkei continues to trade out of control, under the weight of stimulus and intervention.






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. Overall the major stocks in the ASX200 remain clearly positive; however, I have reduced exposure into recent strength positioning myself for a potential pullback to buy back in.

Stock picking remains at a premium as is demonstrated in 2013 by BOQ outperforming in the Banks and FMG in the resources space.




























Australian Dollar

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.




Commodities

The Gold chart looks bullish longer term targeting fresh recent highs, likely over $2,000 suggesting inflation - confirmation requires a close over 1480. On a monthly basis, gold remains bearish targeting new lows for 2013/14 under 1180. Conversely, a sharp bounce towards the 1400 area would not surprise.

Also, the amount of money tied up in Gold ETF’s that did not exist pre-2004 remains. 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 we all saw what happened there.





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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