Market Matters Report / The Hickman Report 8 March 2014

By Market Matters 08 March 14

The Hickman Report 8 March 2014

The Hickman Report 8 March 2014

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Market Matters Summary for Saturday 8th March 2014

  • The ASX200 rallied 57 points last week and the Dow 131 points after both falling on Monday due to Ukraine fears.
  • There remains no sell signal in the markets at present but the US indices have hit my targets and they failed to rally on good unemployment data on Friday: I still anticipate a 6% correction in the US Indices from here.
  • Interestingly Friday was the eve of the bull markets 5-year anniversary in which time the S&P 500 has nearly tripled, my call of a 6%retracement from here is far from major in this context.
  • If we get this downturn, the ASX200 is very likely to follow, how far will depend on the catalyst for the correction.
  • I reiterate I’m a buyer of any pending correction as I remain overall bullish for 2014 expecting a zigzag rally.
  • I had believed the domestic banks will underperform in 2014 BUT at present they are strong and I now believe they will continue this trend into May’s dividends for ANZ, BOQ, NAB & WBC before potentially struggling.
  • The resource stocks should be under significant pressure on Monday with Copper -3.6%, Gold -1% and Iron Ore -2.3% on Friday, also Vale the world’s largest Iron Ore producer was down a huge 5% in the US.
  • I am not a buyer of this sector at present and can see Fortescue Metals (FMG) 8% lower than Fridays close ($5.43), I regard Friday’s 4% intraday move up and then down in the stock as a warning sign of volatility ahead.
  • Last week I bought Bank of Queensland (BOQ) targeting $13+ and a healthy dividend in May.
  • This week I am a buyer of Fairfax (FXJ) under 90c, Fortesue under $5, Newcrest around $10.50 plus the market in general if the US falls 5-6% & a seller Crown (CWN) $18.25+).

 

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What Mattered Last Week

Political tensions in Ukraine dominated the Australian share market early in the week, prior to domestic economic data taking over with strong Retail Sales at the forefront pulling up the sector by almost 5% for the week.

  • While the domestic market feels fully valued in the 5450 region there remains a clear capital inflow to the market which consistently sees the ASX200 closed 10 points higher than where it was trading at 3.59pm.

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

  • Positive Performance from – Bank of Queensland (BOQ) +4.9%, Leighton’s (LEI) +14.7%, Seek (SEK) +6.7%, Challenger (CGF) +8.2%, Newcrest (NCM) +5.8%, JB Hi-Fi (JBH) +7% and Carsales (CRZ) +12%.
  • Negative Performance from - ASX -2%, RIO -2.8% and QANTAS -2.1%.
  1. Last week I purchased Bank of Queensland (BOQ) targeting over $13 and a healthy dividend in May. I am currently envisaging switching generally from banks after May dividends looking for a significant correction similar to 2013.
  2. Last week it was again good to see Fortescue (FMG) retreat again, our reentry level under $5, is approaching fast.
  3. I remain 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

  • This week I will again have one eye on the domestic market and one on the US indices. I still get sell signals on the NASDAQ under 3630 (-2%) targeting under 3500 (-6%).I am a buyer of equities in general if / when we get this correction.
  • Locally as mentioned above the resources will be fascinating next week, I can see major weakness / underperformance from this sector. The lead from underlying commodities is all negative. I am not a buyer of Fortescue (FMG) until 8% lower.
  • The uranium story has been catching my attention and I have been waiting for a good risk / reward opportunity to become a buyer as Japan restarts its reactors. I can buy Paladin at 60c with stops under 55c as trade. NB the stock makes no $$ and pays no dividend.
  • The ASX200 remains tricky after a straight line +8% rally, I anticipate ongoing consolidation, but the initial pullbacks are likely to continue to find plenty of buying appetite. A close for the ASX200 under 5,440 is an initial warning and under 5,300 bearish.
  • Overall if we get a 6% correction in the US I expect the local market to outperform with dividends looming in May.
  • As outlined above I am 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.
  • The major 4 Australian banks have averaged 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!


Trading for the coming Week

  • I remain overall bullish for 2014, especially the US Tech indices, the recent correction was completed extremely quickly, with the ASX200 since rallying over +8% reaching fresh 6-year highs.
  • I now am looking for another 6% correction in US Indices; there are no confirmed sell signals yet. NB Also, I believe there will be more in 2014 including one likely well over 10%. 
  • I am still of the strong opinion that patience will be the key in 2014, as this bull market slowly matures and becomes very zigzag in nature.
  • I reiterate, investors should maintain a set plan for 2014, recently we saw some great buying opportunities and now a few weeks later profit targets are looming for some stocks. E.g. Crown and Bank of Queensland, alternatively Fortescue (FMG) has since fallen 13% after reaching our 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 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) 94c stops under 88c.
    7. Fortescue Metals (FMG) –$4.50-5 area – stops under $4.
    8. Magellan Financial Group (MFG) – under $10 & take ½ profit over $13.
    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.
    13. Woolworths (WOW) - $37 area – I would be taking $$ 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.

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:

    • AOC, AWC, CSS, FRE, FXJ, KCN, KDL, LEI, OZL, PEN, & PDN – 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 (m), 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).

Neutral: AMP (w), ASX200 (d), 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 (d), China (m), Copper (m), US Indices (d), 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 monthly basis, but neutral / bearish on both a daily / weekly basis as I look for a 6-8% correction for overseas markets. Also the close correlation with the NZ market is a concern as it is looking 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 New Zealand 50 Index Monthly Chart

 

Chart 8 – New Zealand 50 Index Monthly Chart

 


American Equities

The American indices are at my sell levels after only a few weeks ago generating buy signals! However, any decent weakness in the US should be aggressively bought as both 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 220+ point correction in the NASDAQ.

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, 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.

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 stocksthere is 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.

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) 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, I am looking for another counter trend bounce towards 93c over coming weeks that may aid entry to stocks that benefit from $US 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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