Market Matters Report / The Hickman Report 18th January 2014

By Market Matters 18 January 14

The Hickman Report 18th January 2014

Most value at present in the materials sector

Market Matters Summary for Saturday 18th January 2014

  • The 0.1% fall in the ASX200 does not reveal the significant themes emerging for 2014, which importantly I believe will continue.
  • The standout being the Banking Index fell 2.7% (CBA -2.7%), but Materials rallied 4.7% (FMG +9.2% & NCM +10%).
  • I don’t envisage a likely change in this relative performance until CBA reports on 12th February.
  • I remain bullish for 2014, especially the US & Europe, but 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, 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.
  • Also be prepared to take all, or part, profit when stocks hit targets e.g. Crown at $18 this week.
  • A number of battered / shorted stocks had a great week e.g. OZL +16.5%, AWC +12% & PDN +26%. Another theme I like and have discussed for 2014 - I have listed a few stocks below that make ideal “sleepers” in a portfolio for 2014.
  • Gold stocks continue to show excellent signs of a bottom; I remain comfortable buying NCM.

 


What Mattered Last Week

  • Last week was very quiet for the overall Index with the ASX200 closing down just 6 points, while the Dow was marginally higher, up 21 points. As mentioned in the summary all the activity was focused in relative sector performance.
  • The market awoke from a Christmas slumber with a decent 18% increase on volume week on week & +30% on Friday.
  • It’s clear that people see the most value at present in the materials sector; it’s very easily to see why on a simple P/E matrix.
  • The following P/E’s illustrate this perfectly: CBA 15%, TLS 16%, CWN 20.1%, BHP 12.8%, RIO 10.3% & FMG 4.9%.
  • Interestingly, Iron Ore stocks had a great week even with Vale, up only 0.5% and Iron Ore falling well under $US 130 /t.
  • Stocks rallying on negative or no news, is usually a bullish indicator e.g. FMG +9.2% and RIO +4.2%.
  • The Banking Sector -2.6%, Diversified Financials -2.5%, Insurance -1.5% & Retail -1.5% shows yield wasn’t in focus this week, this ties in with my view for the year.
  • The poor unemployment data may have the RBA looking at one more rate cut; they have a history of going too far in both directions. However, a hot housing market and a falling $A weighs against this. The next major cycle will be up and markets look 12 months ahead.
  • Last week I paid up for FMG after it failed to meet my ideal level but turned hard. Traders / investors always need to be flexible especially having identified the trade to be implemented.

What Matters This Week

  • The ASX200 looks set to grind higher in a choppy fashion through 2014, unlike the US and some European Indices that are accelerating to the upside. 
  • My work on correlations with clearer indices (e.g. NZ50 on chart 8) has sub 5,000 for the ASX200 flashing in big lights at some stage in 2014.
  • I am now 80-20 in favour of the NZ Index and ASX200 seeing fresh recent highs in Q1, 2014 prior to a decent retracement.
  • With Gold rallying over $10 on Friday night, BHP up 30c and the SPI down it appears last week’s relative sector performance will be ongoing as anticipated.
  • Interestingly the NASDAQ, which I regard as the leading indicator in the US, was down 0.6% while Dow was up 0.3%; this may be indicating that a period of consolidation is close at hand for the American Indices. 
  • However, Apple, the largest stock in the NASDAQ still looks bullish even after Friday night’s 2.56% fall.
  • Also, the FTSE looks set to punch over 7,000 in coming weeks, another positive signal.


Trading for the coming Week

  • I remain bullish for 2014, but believe a decent correction will occur in 2014, perhaps in the old favourite May.
  • Last week’s over 2c fall in the $A, reinforced the strength of the major downtrend targeting the 80-82c area.
  • Again this should aid the materials sector, $US earners and hinder banks.
  • 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 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 still recommending buying NCM stock or long dated NCM calls for trading / option investors, with a target over 50% higher.
  • Investors should maintain a set plan for corrections and profit targets, as this choppy year unfolds. I have decent cash holdings, even after buying FMG last week and will simply buy my preferred equities into weakness. I have again refined these below:
  1. ANN - $19
  2. CWN -$18
  3. BOQ - $11
  4. FMG – over $6.
  5. MFG – under $10
  6. REA - $45
  7. RMD - $4.50
  8. CSL - $60
  9. QBE - $10.75
  10. 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, and hence retracements can feed on themselves.

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

AWC, FXJ, KCN, LEI, OZL, PDN, & SLR.


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), 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), Gold (m), NAB (w), NZ (w), NCM (m), QBE (m), RIO (w), STOXX (w), WBC (w) & WES (w).

Bearish: China (m), Copper (m), 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 and daily basis. The path of least resistance remains up as dips are bought, I will remain positive while the ASX200 is over 5,200.

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 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 (and DAX) 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. The Dax looks very bullish and similar to the NASDAQ, any 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 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 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.

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, 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 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 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 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
marketmatters.com.au
Level 15, 60 Castlereagh Street
Sydney NSW 2000