Market Matters Report / The Hickman Report 29 March 2014

By Market Matters 29 March 14

The Hickman Report 29 March 2014

The Hickman Report 29 March 2014


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Market Matters Summary for Saturday 29th March 2014

  • The ASX200 gained 0.5% last week and the Dow 0.1%, in a relatively quiet week on the trading & news front.
  • The $US earners had a poor week as this is currently a crowded trade and the $A rose over 2c last week.
  • The anticipated 6% correction in the NASDAQ has already unfolded 5.2%, hence, is likely close to completion.
  • With European markets & banks looking positive the ASX200 may be ready to rally into bank reports / dividends.
  • After most markets have rallied to fresh 2014 highs, I am anticipating a significant correction of over 10%.
  • My instincts are telling me that sell in “May and go away” will apply to 2014. 
  • Four of the banks report in the first 8 days of May, I believe they will run up into these reports and potentially the dividends that follow, BUT then it’s time to get out as the market focuses on rising bond yields.
  • As I mentioned, the big 4 banks grow on average 5.7% in March / April since 1997 (www.probabilitytrader.com).
  • 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) in coming weeks, ideally after May dividends. SUN pays a higher dividend than the banks and benefits income wise from higher rates.
  • In the coming few weeks, I am likely to maintain my current positions and watch incase the above unfolds early.
  • Subsequently, with rates rising and resources unclear, investors will need secular growth stories 2014. I am likely to move into a majority cash position if the market unfolds as I anticipate above.


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What Mattered Last Week

Interest rate concerns took a back seat last week, with jawboning from the RBA around an improving economy and house prices appreciation should slow down gaining traction in the press. Interestingly, one economist called the Sydney housing market the “canary in the coalmine” that would cause rates to rise, but its offshore buyers and SMSF that are blamed for the acceleration in housing prices and interest rates don’t bother so them much.

  • A point of note is that stock market / house falls / corrections rarely happen when discussion of it is on the front pages of newspapers.
  • I do expect interest rate rises, but I personally just believe house price appreciation will slow down.
  • My biggest concern remains the potential relative poor performance of bank shares in coming years.

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

Positive Performance from – Fortescue (FMG) +7.2%, JB Hi-Fi (JBH) +2.9%, Macquarie (MQG) +5.1%, RIO +3%, Westpac (WBC) +2.5%.

Negative Performance from - Carsales (CRZ) -5%, Crown (CWN) -2.2%, Healthcare sector -2.2%, Metcash (MTS) -6.3%, Myer -9.8%, Regis (RRL) -9.1%.

  1. Last week was quiet and we kept “the powder dry,” except a few sophisticated option trades on the banks increasing exposure to a rally into May, followed by a fall by end of June.
  2. It’s been hard predicting the ASX200 for this pullback which has been extremely choppy but looking at US / Europe it may be over.

 

What Matters This Week

  • This week, I will yet again have one eye on the domestic market and one on the US indices. I am a buyer of equities in general if / when we get a 5-6% correction in US equities, which may be over or very close to completion.
  • Locally as mentioned above, I have no interest in resources until we get clarity on China, especially as I am long term bearish on copper and BHP.
  • The ASX200 is consolidating as expected with the important 50% 5,250 technical level looming.
  • I remain mildly positive banks into the May dividends, so any correction to February’s +10% rally, I will become a buyer. Levels will be refined if it unfolds in the morning reports, paying attention the US indices as stated above.
  • The major 4 Australian banks have averaged a 5.7% return for March & April since 1997 as locals buy and hold for the 45-day rule, to keep the attractive franking credits – a very hard statistic to ignore! (www.probabilitytrader.com).
  • I remain a keen buyer of Fairfax (FXJ) between 86c and 90c.

 

Trading for the coming Week

  • Very little change from last week.
  • I remain overall bullish for 2014, especially the US NASDAQ index. To date, corrections have been short and sharp. I am focusing on the current unfolding weakness / consolidation to generate buying opportunities in the domestic banks prior to May dividends. Prior to reducing holdings.
  • I am now looking for only a further 2% correction maximum in the NASDAQ to continue buying domestically.
  • I am still of the strong opinion that patience will be the key in 2014, as this 5 year bull market slowly matures and becomes very zigzag in nature.
  • I reiterate, investors should maintain a set plan for 2014, and profits must be taken at targets. E.g. Fortescue (FMG) has fell 25% after reaching our major profit target.
  • With recent very choppy action, both profit & buy targets may be attained VERY quickly, see refined levels below, have orders placed in the market:
    1. Ansell Ltd (ANN) - $18.00 & $22.50 – Stops under $17.
    2. ANZ Bank (ANZ) - $28.50 & Sell calls into strength over $34 for sophisticated investors.
    3. CBA Bank (CBA) - $70 & $82.
    4. Crown Resorts (CWN) -$18.50 & $15.50. Stops under $13.70.
    5. Bank of Queensland (BOQ) - $11 & $13+.
    6. Fairfax (FXJ) 86-90c. Stops under 80c.
    7. Fortescue Metals (FMG) –$4.50 area – Stops under $4. – for traders.
    8. Magellan Financial Group (MFG) – under $10 & take ½ profit over $13.50.
    9. REA Group (REA) Take ½ profit $50+.
    10. Resmed (RMD) – under $4.50 – Stops under $3.80.
    11. CSL Ltd (CSL) - $60.
    12. Seek Ltd (SEK) – Awaiting development, buy a $2+ retracement towards $16.50.
    13. Woolworths (WOW) - $37 area – I would be taking at least 1/2 profit now.

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 large swings can feed on themselves and we witnessed this last week as the $A rallied 2c.

 

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 (w), BOQ (w), CBA (m), CSL (m), CWN (m), Dow (m), FTSE (w), IBEX (m), NASDAQ (m), Nikkei (m), REA (w), SEK (m), S&P (m) & SUN (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (m), BEN (m), BHP (w), Hang Seng (w), FMG (w), IBEX (w), NZ (w), QBE (m), Retail Index (w), RIO (w), S&P (w) STOXX (w) & WES (w).

Bearish: BHP (m), China (m), Copper (m), Gold (w), NCM (w), WOW (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 daily / weekly basis when I look at US / Europe but I am a concerned on a monthly basis anticipating a +10% correction likely from May. Also, the close correlation with the NZ market is a concern as it is shaping up for a 10% correction in 2014 (chart 7).

 

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 a few weeks ago and since then the NASDAQ has fallen 5.2%, very close to generating buy signals!

The NASDAQ (and DAX) is the clearest index and the most bullish, I remain an aggressive buyer of the current correction in the NASDAQ targeting 3,800 area into May.

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 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, the recent 881 point retracement appears well and truly over and 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 no sign of this at present.

  • I am recommending switching at least one bank holding to SUN now, or after May dividends.

Any correction in coming weeks should be bought as we seasonally enter an excellent period for the big 4 Australian banks with May dividends approaching. I can see a likely scenario unfolding of bank underperformance after May dividends.

 

 

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 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 – 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 US$1,400 area. Next stop US$1,100?

 

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.

Have a great week,

 

Shawn Hickman



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