Market Matters Report / The Hickman Report 19 April 2014

By Market Matters 19 April 14

The Hickman Report 19 April 2014

Market Matters Summary for Saturday 19th April 2014

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Market Matters Summary for Saturday 19th April 2014

Happy Easter everybody!


  • The ASX200 gained 0.5% last week and the NASDAQ +2.6%, while the Dow was unchanged after falls mid-week. 
  • The NASDAQ has now corrected 8.7% and technically looks bullish for a few weeks, ideally to fresh 2014 highs.
  • I’m looking for a high in equities relatively soon, in 2013 the Dow fell -6.4% from the 22nd May & the ASX200 -11.8% from 15th of May aggressively led by the banks who mostly topped in the 1st week of May – markets repeat.
  • I look at statistics closely, the big 4 banks grow on average 3.2% in April since 1997 (www.probabilitytrader.com) – the banking index is only up 0.8% so far this April, I will watch this closely as I’m looking to sell banks.
  • “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 will focus on rising bond yields.
  • Markets clearly have been focusing on lofty valuations created by free money. Great performers were sold aggressively e.g. Carsales -20.1%, Magellan -21.1%, Realestate.com -16.2%, Seek -14.9%, Vocus -16.8% & Xero -41.2%. – I believe it will be a while until most of these get back to recent “dizzy heights”.
  • Investors have been flocking to “safe” stocks like Woolworths / banks and will then likely push these too far.
  • I was happy to buy the recent correction via Seek, BUT I will be far more selective when it becomes a yield correction as I believe it will be ugly, my estimate is a 15-20% correction for the banks.
  • Investors are too complacent with “yield holdings” and this is never a successful mindset. 
  • 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.
  • 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 and search out growth / recovery stories.

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What Mattered Last Week

Last week cornily sounded like a market of two halves, i.e. perceived safety stocks v stocks with high valuations. Safety stocks like Woolworths (WOW), Westpac (WBC) and ANZ are at, or close to, all-time highs but highly valued stocks were sold e.g. CSL, Ramsey Healthcare (RHC), Primary Healthcare. Interestingly in the past few years the healthcare sector has been the safety haven but NOT when it’s stocks with very high valuations being sold.

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

  • Positive Performance from – Alumina (AWC) +5%, JB Hifi +1.5%, Woodside (WPL) +1.9%, Woolworths (WOW) +2%.
  • Negative Performance from - Coca-Cola -17.5%, Perpetual (PPT) -5.8%, Primary Healthcare -4%, QBE -6.4%, Ramsey Healthcare 6.3% & Santos -2.1%.
  1. Last week we were quiet carefully watching the banks rally into our sell areas.
  2. It remains hard predicting the ASX200 recently and hence, I am also focusing more on individual equities and overseas equities.


What Matters this week

  • With Easter Monday coming and ANZAC Day next Friday next week is only 3 days, including equity option expiry on Wednesday.
  • I remain bullish going forward and am not scared by the increasing number of “Doomsday Merchants” getting published at present. However, I do expect a classic “sell in May and go away” correction to unfold led by the banks.
  • My estimate where the overall market gives great value is around 5050 the lows of 2014 and I see the market as overvalued above 5500 where it may reach this week.
  • I envisage a squeeze up in the banks next week as call option sellers have to cover prior to Wednesday’s expiry. This is likely to again push ANZ and Westpac to all-time highs where I will start to take profits.
  • 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

  • Long Seek (SEK) around $16 with stops now under $16.20.
  • Buy Fairfax under 90c with stops under 84c and a target over $1.50.
  • Buy Resmed (RMD) under $4.35 with stops under $3.95 and a target of $6.
  • Buy Vocus (VOC) around $4.25 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 another 2% 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) & WOW (m).

Bearish: Banks (w), BHP (m), China (m), Copper (m), Gold (w), MFG (w), NCM (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 a decent correction from May – July.

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 8.7%. Ideally we will now see a rally to fresh 2014 highs prior to a deeper correction but we are monitoring this daily as tops are hard to pick and trade.

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 stocksthere is clearly no sign of this at present.

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

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.



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