Market Matters Report / The Hickman Report 8 February 2014

By Market Matters 08 February 14

The Hickman Report 8 February 2014

The Hickman Report 8 February 2014

Market Matters Summary for Saturday 8th February 2014

  • Emerging markets talk has diminished significantly & on Friday night, the US indices rallied well after poor data.
  • I am now 50-50 whether February’s ideal buying opportunity has been and gone. I bought ANZ & BOQ, any further weakness in the ASX200 looks likely to remain bank led as investors clearly look to reweight back into resources.
  • I reiterate, we MUST be flexible and nimble in 2014 – dynamics change, interestingly the most valuable 2 companies, in the US, at one stage last night were Apple & Google. Both juniors a decade ago.
  • My view remains the 2014 will be a positive year, BUT with plenty of large swings, be prepared to both buy & sell.
  • I’m a buyer of fresh lows in major indices for 2014, BUT also a seller of fresh highs for 2014 – this ties in with my rising staircase style view for 2104. NB I cannot see new highs in the ASX200, but I can for a number of stocks.
  • I believe banks will underperform in 2014 and soon, the lower / mid cap space will be the place to be.
  • However, I am comfortable holding domestic banks yielding well over 6%, before franking, but not overweight.
  • Last week we saw a takeover bid for Aurora Oil & Gas (AUT) by a Canadian company. People will very soon commence looking at the valuations of this battered lower cap sector, there are bargains around! – see chart 7.
  • Four of my preferred stocks hit excellent buy zones last week and rallied well, I am still happy to buy these levels if they return in coming weeks i.e. ANN, ANZ, BOQ & CWN.
  • Again in 2014, be prepared to take all or part profit when stocks hit targets e.g. Crown at $18 recently. Only 4 weeks later the buy zone was hit under $16 a 13% correction. This will be repeated often in 2014.
  • Gold stocks continue to show excellent signs of a bottom; I remain comfortable buying any weakness in NCM, especially after the $10 psychological resistance has been breached.

 


What Mattered Last Week

Last week was explosive on the downside for equities, with the ASX200 challenging December’s 5,000 support. Thursday & Friday then saw a strong 3% rally and the index is now neutral on a daily basis.

  • A week later & I have to look hard to find any mention of the “plunging emerging markets” in the AFR &/or WSJ online – classic stock market cycle.
  • Friday night’s rally on poor unemployment data is certainly very positive on the surface. Perhaps it’s time to focus on lower rates again.
  • Again, the Iron Ore stocks space that I remain very positive traded well for the week, with FMG +27c, banks bore the brunt of domestic selling.
  • All banks were hit, on Wednesday we had ANZ -$1.29 & NAB -$1.77 for the week – I am currently a buyer of these banks when they yield 6.2% (8.5% ff).
  • Gold stocks had another solid week, led by Newcrest Mining (NCM), but I feel a surge over $1,300 is required to accelerate this move short term.
  • Yet again, the Banking Sector -1.5%, Telstra -2.5% (see last week’s “Standout of the week”), Insurance -2.1%, Retail -3.1% but materials +1.5%, confirming yield is not in focus, this ties in with my view for 2014.


What Matters This Week

  • After the recent anticipated correction in equities, I am back to 50-50, anticipating some clarity by Tuesday / Wednesday.
  • I am watching the US Indices closely as they are technically clear at present; I am a keen buyer of a 5% correction and a keen seller of fresh highs, approx. 3% in the NASDAQ
  • The ASX200 remains tricky with yield sectors struggling, but the resources space outperforming, individual stocks offer more clarity e.g. Bullish FMG & WOW while QBE / TLS are a clear leave alone / sell.
  • This week company results include Cochlear (COH), CBA, Carsales (CRZ), CSL, NCM, RIO & TLS - a significant part of our index reporting in one week!
  • A great result for CBA and the banks may be back in favour very quickly.
  • After last week’s poor US employment data, some support for the yield sector is anticipated this week.
  • The “abc” target remains at 4,950 for the ASX200 in the first quarter of 2014, I can envisage plenty more choppy price action in weeks to come with patience remaining a priority in a year that will likely provide plenty of opportunities.
  • Simply, If the US rallies 3% as discussed above I will skew my positions negative and if they correct another 5% I will be an aggressive buyer.


Trading for the coming Week

  • I remain overall bullish for 2014, especially the US indices, the current correction may be complete, BUT I believe there will be more in 2014 including one likely 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 choppy.
  • I will be investigating the small caps this week, and in weeks to come, watch for ideas – see chart 7 illustrating 52% underperformance.
  • The gold sector continues to unfold as anticipated and I remain a happy buyer of weakness in NCM and SLR. I still feel a clear breach of $1,300/oz. is required to convince the none believers but there are plenty of buyer on weakness.
  • The NCM chart looks similar to the Spanish IBEX – chart 17, which has just rallied +70%. My NCM target remains at $14.
  • I reiterate, 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 / BOQ and ANZ recently and will simply buy my preferred equities into weakness.
  • Also, do not forget to sell when stocks like Crown (CWN) hit my targets, some are outlined below:
  1. ANN - $19 & $22.50
  2. ANZ - $28.50 & sell calls into strength for sophisticated investors.
  3. CBA - $71.50 & $82.
  4. CWN -$18.50 & $16.
  5. BOQ - $11 & $12.25
  6. FMG –under $5 & over $6
  7. MFG – under $10
  8. REA - $45+
  9. RMD – under $4.50
  10. CSL - $60
  11. SEK - $10.75 
  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 2014-5, hence retracements can feed on themselves as we are seeing with Crown (CWN) at present.

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:

  • AWC, CSS, FXJ, KCN, KDL, LEI, OZL,PEN, 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), CWN (m), Dow (m), FMG (w), 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), Hang Seng (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 bearish on both a daily / weekly basis. I remain mildly negative the ASX200 while it is under 5,225 targeting 4,950 but on balance, 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 now 50-50 having reached my minimum 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 7,000 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 to an underperformance from bank / yield stocks.

I remain a comfortable buyer of bank stocks into this +10% correction and writing stock specific calls. However, 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

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.

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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