Market Matters Report / The Hickman Report 25th January 2014

By Market Matters 25 January 14

The Hickman Report 25th January 2014

Excellent buying opportunities?

Market Matters Summary for Saturday 25th January 2014

  • Only one day after the Morning Report highlighted the hiccup looming in emerging markets, it came home to roost.
  • The $A plunged under 87c, the Dow -300 points, & the ASX200 is indicating a 70 point fall next week. I expect more!
  • With Australian markets closed on Monday, moves may easily be greater when Tuesday morning arrives.
  • I remain bullish for 2014, but believe that a decent correction is now unfolding to buy. Don’t Panic!
  • Again I reiterate 2014 is a stock pickers market, investors should have a list of stocks to buy if / when they correct.
  • I am watching ANN, BOQ, CWN, CSL, FMG, MFG, REA, RMD and SEK to buy at lower levels as outlined beneath – most of them benefit from offshore earnings. I believe opportunities are close at hand.
  • Again in 2014, be prepared to take all or part profit when stocks hit targets e.g. Crown at $18 last week.
  • After less than one month, my view that buying banks and closing one’s eyes is NOT the way for 2014 is looking correct. A more active approach will be required to maximize returns.
  • A number of battered / shorted stocks have started 2014 well, a theme I like and have discussed for 2014 - I have expanded a list of a few stocks below that make ideal “sleepers” in a portfolio for 2014 – I own 3 of them as below.
  • Gold stocks continue to show excellent signs of a bottom; I remain comfortable buying any weakness in NCM, but $10 is a clear psychological resistance & a sharp move in gold I feel is required to convince the non-believers.

 


What Mattered Last Week

Last week was explosive on the downside for equities, led by the Dow falling 640 pts., the ASX200 65 pts. while Gold rallied $16.

  • As discussed, markets have quickly switched focus to a slowing China and then to panic around emerging markets.
  • This sudden change in focus away from the US recovery was very dramatic on Thursday, sparked by the economic date from China showing contraction for the first time in 6 months.
  • Iron Ore stocks traded lower with the market, as Iron Ore price traded under US$130/t. as expected.
  • Conversely, most gold stocks had a solid week, as gold hit an eight week high. If the concerns around emerging markets continue, a surge over $1,300 could easily unfold and I believe this will propel gold stocks higher.
  • The Banking Sector -0.9%, Telstra -1.7%, Insurance -2.2% & Retail -5.8% again shows yield wasn’t in focus this week, these ties in with my view for the year.
  • The $A came under increasing pressure over the week closing under 87c, I see another 5c in this move which helps the bottom line significantly of a number of my favoured stocks e.g. CSL, FMG & QBE.

What Matters This Week

  • After Friday night’s carnage on Wall Street, opportunities are looking close at hand. I believe this sell off has further to go, targeting 4% lower in the NASDAQ which ideally will push gold over $1,300 for my positions.
  • It’s unlikely that concerns over emerging markets and China will dissipate within a week.
  • The break of 5,200 by the ASX200 which is indicated by the SPI Futures, after the Dow’s fall, is likely to see a test of December lows in the 5,050 region quickly.
  • Also, the “abc” target is looming at 4,950 for the ASX200 in the first quarter of 2014.
  • Theoretically, the banks will lead this decline next week, but I cannot wonder if buyers will appear, as with a little weakness, most of the banks will be offering over 6% yield and over 8% after grossing up for franking credits. Clearly attractive compared to term deposits well under 4% prior to being tax.
  • I remain a keen buyer of ANZ under $30 and BOQ around $11.
  • As mentioned above the weak $A will help some companies profitability significantly but with BHP indicating a fall over 2% next week, it appears the market is not yet focusing on this benefit. I am still targeting 80-82c in 2014.


Trading for the coming Week

  • I remain bullish for 2014, especially the US indices, the current correction is likely to produce excellent buying opportunities in a number of different sectors over coming weeks.
  • 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 continues to unfold as anticipated and I remain a happy buyer of weakness in NCM and SLR.
  • If we get a spike in gold through $1,300, I will look at taking $$ on some of these gold plays and switch into any stocks that hit my target areas below to buy.
  • The NCM chart looks similar to the Spanish IBEX chart which has just rallied +70%. My NCM target remains $14.
  • Investors should maintain a set plan for this correction and profit targets, as this choppy year unfolds. I have decent cash holdings, even after buying some FMG recently and will simply buy my preferred equities into weakness. I have again refined these below:
  1. ANN - $19
  2. CWN -$18 & $16.
  3. BOQ - $11
  4. FMG - over $6 & under $5.
  5. MFG - under $10
  6. REA - $45
  7. RMD - $4.50
  8. CSL - $60
  9. 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, CSS, FXJ, KCN, KDL, LEI, OZL, PDN, & SLR – 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), BOQ (m), CBA (m), CSL (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 (d) & (w), CWN (m), FMG (w), Hang Seng (w), NAB (w), NZ (w), NCM (m), QBE (m), RIO (w), STOXX (w), WBC (w) & WES (w).

Bearish: ASX200 (d), China (m), Copper (m), IBEX (w), Retail Index (w), S&P (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 am bullish on a monthly basis but bearish on both a daily / weekly basis. I will be negative the ASX200 while the ASX200 is under 5,200 targeting 5050 / 4950.

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 to be correcting after 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 remain 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 900 point 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 long term 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, Octobers 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

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 visited China at the end of 2013, the only two investments that interest locals are property (a lot in Sydney!) and gold.

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.

Happy Australia Day for tomorrow!

Shawn Hickman
 

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