Market Matters Report / The Hickman Report 5 April 2014

By Market Matters 05 April 14

The Hickman Report 5 April 2014

The Hickman Report 5 April 2014


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Market Matters Summary for Saturday 5th April 2014


  • The ASX200 gained 1% last week and the Dow 0.6%, a quiet week prior to Friday night’s savage sell off in the US.
  • The NASDAQ fell aggressively on Friday night (-2.6%) after the Dow and S&P500 failed to hold all time highs.
  • The anticipated +10% correction in the NASDAQ may have already commenced but my preferred scenario is No.
  • I will await the next few day’s trading in the US, prior to forming a conclusion - see morning reports.
  • Both the US, NASDAQ and German DAX still look positioned to make fresh 2014 highs in the coming month.
  • My instincts are still telling me that sell in “May and go away” will apply to 2014, BUT caution is warranted.
  • Four of the banks report soon, starting with Bank of Queensland next Friday. I believe they will be strong into these reports and potentially the dividends, BUT then it’s time to sell as the market focuses on rising bond yields.
  • The big 4 banks grow on average 3.2% in April since 1997 (www.probabilitytrader.com) – no real move yet.
  • 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.
  • I am likely to sell both BOQ and ANZ and look to buy NAB into weakness. Cyclically I prefer Europe to Asia.
  • 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 for 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

Last week was very quiet as the markets awaited the US monthly unemployment data on Friday, this came in solidly and US equities fell hard – strong markets do not fall on good news. A clear warning signal that support is diminishing, not a sell signal yet BUT I am not adding to equity positions in current weakness.

  • My preferred scenario is we see further weakness early next week but markets then reverse and close up for the week.
  • Ideally, I will be an aggressive seller of equities when the German DAX and US NASDAQ make fresh highs for 2014, the ASX200 remains far more clouded but it will follow a 10% correction in the US.

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

  • Positive Performance from – Alumina (AWC) +5.8%, BHP +4.5%, Crown (CWN) +3.9%, Lend Lease (LLC) +5.4% and WorleyParsons (WOR) +4.2%,
  • Negative Performance from - Amcor (AMC), Arium (ARI) -2.2% and Leighton’s (LEI) -3.2%.
    1. Last week was again quiet and we kept “the powder dry,” except a few additional 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 recently and hence I am looking at US / Europe for clearer direction.


What Matters This Week

  • Boring, but I will yet again have one eye on the domestic market and one on the US indices. I am conscious that we may have commenced a significant +10% correction in the US.
  • 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 key to any sell triggers locally.
  • I remain mildly positive banks into reports and the May dividends, I am also likely to switch to NAB as my preferred bank after May.
  • 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).


Trading for the coming Week

  • Very little change from last week prior to Friday’s sell off in the US, now I have to consider that a 10% correction has commenced.
  • 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. Banks to be sold soon.
  • I am a short term buyer of Seek (SEK) around $16, strong potential next week.
  • 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 & $80.
  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) – buy current $2+ retracement towards $16..
  13. Woolworths (WOW) - $37 area – I would be taking at least 1/2 $$ 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 recently as the $A rallied 5c.

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), BOQ (w), CBA (m), CSL (m), CWN (m), Dow (m), FTSE (w), IBEX (m), NASDAQ (m), Nikkei (m), 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), REA (w), 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 mildly bullish on a daily basis when I look at US / Europe but I remain concerned on a monthly basis anticipating a +10% correction likely very soon. Also, the close correlation with the NZ market is a worry 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 5.5%, very close to my targets.

The NASDAQ and DAX are the clearest indices and both remain bullish, I remain positive the NASDAQ targeting 3,800 area into May prior to a +10% correction but a top is close at hand.

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 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 stocks – there is no sign of this at present.

  • I am recommending switching at least one bank holding to SUN now, or after May dividends.
  • Plus, NAB will be my preferred bank at some stage in coming months.

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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