Market Matters Report / The Hickman Report 22 February 2014

By Market Matters 22 February 14

The Hickman Report 22 February 2014

The Hickman Report - Saturday 22nd February 2014

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Market Matters Summary for Saturday 22nd February 2014


  • The ASX200 has had an amazing +400 point rally, without even a 50 point correction, over 13 very strong days.
  • Interestingly, the recent Christmas rally was 13 days / 330 points so the 5,450 area is my logical short term target.
  • There are no sell triggers yet in the ASX200 - NB we were +82 points when the Dow was -51 points last week.
  • Last week the rally was led by the big miners with only a few individual shares falling after reporting.
  • The overseas markets are unfolding exactly as anticipated, I expect new 2014 highs in the S&P followed by another 6-8% correction i.e. 2014 will be a staircase rally.
  • If we get another 3% rally in the US it’s very hard to predict how far the ASX200 will go after +7.9% straight up.
  • The NASDAQ has made fresh 2014 highs, the S&P is close, I am still looking for SELL triggers in the US Indices.
  • I would sell the NASDAQ under 3,600 (2% lower) targeting 3,400 (over 7% lower).
  • If we get this downturn, the ASX200 is likely to follow, how far will depend on the catalyst for the correction.
  • I reiterate I’m a buyer of any pending correction as overall I remain bullish for 2014.
  • I have believed banks will underperform in 2014, at present they are solid BUT quality miners are outperforming.
  • Individual stocks are trading with enormous volatility illustrating my strong view that portfolio’s must be fluid in 2014. Last week I bought Crown and sold Silverlake, Newcrest and FMG.
  • I am a buyer of Crown (CWN) around $16.50, Ansell (ANN) around $18.25 & Fairfax (FXJ) via stock, or calls, here.
 

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What Mattered Last Week

Company reporting dominated the Australian share market last week, but there was also noticeable money flow into domestic equities resulting in decent outperformance compared to US equities. Six-year highs for the ASX200 look inevitable in coming weeks.

  • The domestic market ignored poor domestic unemployment data and poor growth data from China, a short term positive momentum indicator.

On the results front, the below caught my eye:

  • Positive results from – AMP, BHP, Brambles (BXB), Fortescue (FMG), Leighton Holdings (LEI), Monadelphous (MND) and Sonic Healthcare (SHL).

  • Negative results from - Ansell (ANN), Coca Cola Amatil (CCL), Crown (CWN), UGL Ltd, Santos (STO) and Sims Metals (SGM).

  1. The strong run up and result from FMG enabled us to take profit at our $6 target area last week, I remain a keen buyer around the $5 area.

  2. Conversely, Friday’s sell off by Crown after its result, enabled us to buy in the $16.50 region. I would add to this around $15.50.

  3. I am also positive Ansell at these levels for investors looking for a spread of holdings, a great switch out of Coca Cola (CCL) which I am bearish.


What Matters This Week

  • The main focus in the coming week will again be on company reports with the following included in the list to front the market with results – AGL Energy (AGK), Atlas Iron (AGO), Caltex (CTX), James Hardie (JHX), Oilsearch (OSH), Perpetual (PPT), Qantas (QAN), QBE, Silver Lake Resources (SLR), Sydney Airports (SYD), Westfield (WDC), Whitehaven (WHC), Woolworths (WOW), Worley Parsons (WOR) and Wotif (WTF).
  • The ASX200 remains tricky after a straight line 7.9% rally, I anticipate consolidation imminently, but the initial pullbacks are likely to continue to find plenty of buying appetite, especially in the 5,350 area.
  • It feels like we have witnessed a lot of short covering locally e.g. Fairfax (FXJ) and it will be interesting to see if this continues when / if the ASX200 breaks to fresh 6 year highs.
  • I am still watching the US Indices closely as they have been technically clear and if this roadmap continues, a decent 7% correction is close at hand, ideally after the S&P / Dow both make fresh highs for 2014.


Trading for the coming Week

  • I remain overall bullish for 2014, especially the US Tech indices, the recent correction was complete extremely quickly, with the ASX200 rallying 7.9% in just 13 days. Fresh 6-year highs look likely In coming weeks for the local market.
  • I now am looking for a turn and another 7% correction soon in US Indices, likely after fresh all-time highs for the S&P. NB Also, I believe there will be more in 2014 including one likely well over 10%. 
  • I reiterate strongly that I am of the opinion that patience will be the key in 2014, as this bull market slowly matures and becomes very choppy.
  • I reiterate, investors should maintain a set plans for 2014, recently we saw some great buying opportunities and now 3 weeks later profit targets are looking for some stocks. 
  • Last week’s company reports allowed me to take profit on Fortescue (FMG) and buy Crown (CWN).
  • With more stocks reporting this week, both profit & buy targets may be attained VERY quickly, see levels below:
  1. ANN - $18.25 & $22.50
  2. ANZ - $28.50 & sell calls into strength for sophisticated investors.
  3. CBA - $70 & $82.
  4. CWN -$18.50 & $16.50.
  5. BOQ - $11 & $13
  6. FMG –$5 area & over $6
  7. MFG – under $10 & take ½ profit over $13.
  8. REA – take ½ profit $48+
  9. RMD – under $4.50
  10. CSL - $60
  11. SEK – awaiting development, buy a $2 retracement.
  12. WOW - $35 & $37.

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 2014-2015, hence retracements can feed on themselves as we saw with Crown (CWN).

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 weeks:

  • AOC, AWC, CSS, FXJ, KCN, KDL, LEI, OZL, PEN, PDN, & SLR – I own the ones underlined.
  • I am looking to buy Fairfax (FXJ) December 95c calls under 10c.


Market Matters’ View at a glance

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

Bullish: ANN (m), BOQ (m), BHP (d), CBA (m), CSL (m), CWN (m), Dow (m), FTSE (w), Gold (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 (w), Hang Seng (w), FMG (w), IBEX (w), NAB (w), NZ (w), QBE (m), Retail Index (w), RIO (w), S&P (w) STOXX (w), WBC (w) & WES (w).

Bearish: China (m), Copper (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 bullish on a monthly basis, but neutral on both a daily / weekly basis. I am 50-50 right here.

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 – ASX200 v Small Cap Index Monthly Chart

 

Chart 8 – New Zealand 50 Index Monthly Chart

 


American Equities

The American indices are approaching my sell levels after three weeks ago generating buy signals! However, decent 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 remain an aggressive buyer of the next 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 7,000 level. The Dax looks very bullish and similar to the NASDAQ, any 900 point retracement should be bought, likely after testing 10,000 first.


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 long term, but positive on a weekly basis.


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 to an eventual underperformance from bank / yield stocks – no sign of this at present.

I remain a comfortable buyer of bank stocks into any correction that send yields well over 6% and writing stock specific calls. However, recent attractive 6.2% yields may need to be 6.5% in 12 months’ time.


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, October’s bounce was a little greater than anticipated breaking 97c, renewed weakness now looks to be unfolding with an ultimate target of 80-82c; clearly benefiting stocks with offshore earnings.



Commodities

Gold looks to have commenced a strong rally towards the 1,400 area.

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


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