Market Matters Report / The Hickman Report Report 22 March 2014

By Market Matters 22 March 14

The Hickman Report Report 22 March 2014

The Hickman Report 22 March 2014

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Market Matters Summary for Saturday 22nd March 2014

  • The ASX200 gained 0.2% last week and the Dow 1.5%, in a quiet week ignoring the future of higher interest rates.
  • I still believe the anticipated 6% correction in the US Indices has commenced, with another 4% remaining.
  • How far the ASX200 corrects in coming weeks is hard to estimate, my best guess is 2-3%.
  • I reiterate, I’m a buyer of the current correction as I remain overall bullish for 2014, expecting a zigzag rally.
  • The domestic banks have been an excellent place to be invested over the last 5 years, with dividends due in May for ANZ, BOQ, NAB & WBC I remain short term a comfortable holder on a seasonal basis.
  • 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.
  • Historically, bond yields have had the largest impact on banks relative performance, BUT we’re not seeing it yet.
  • 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.
  • The resource stocks remain simply too hard at present and for me only trading, not investment vehicles.
  • Subsequently, with rates rising, resources unclear I will looking at the broader market for opportunities in 2014.
  • This week I am a buyer of Fairfax (FXJ) under 90c plus the market in general if the US falls another4% & a seller Crown (CWN) $18.25+.

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What Mattered Last Week

Interest rate concerns took over from political tension with Russia / Ukraine and growth worries around China, although it looks like these have not gone away. The Australian share market is not ideally placed, with underperformance likely to continue if rates are going to rally in the US due to an improving economy, but China may be slowing and we are struggling to know exactly where we fit in.

  • I am not using current China concerns to look for investment opportunities in the resources sector. Even though RIO has fallen over $10 in a few weeks I remain happy not to be in this space.

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

  • Positive Performance from – Cochlear (COH) +4.2%, Lend Lease (LLC) +3.9%, QBE +3.8%,
  • Negative Performance from - David Jones (DJS) -5.5%, Metcash (MTS) -9.5%, Newcrest (NCM) -12.8%, OZ Minerals (OZL) -7.8%, Myer (MYR) -8.9%.
  1. Last week was quiet and we kept “the powder dry”.
  2. It’s been hard predicting the ASX200 for this pullback which has been extremely choppy.
  3. I remain positive Ansell (ANN) 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 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.
  • Locally as mentioned above, I have no interest in resources until we get some clarity on China, especially as I am bearish on copper and BHP.
  • The uranium story has been catching my attention recently and I have been waiting for a good risk / reward opportunity to become a buyer as Japan restarts its reactors. I can try again, buy Paladin Energy (PDN) at 51c with stops under 48c as trade. NB the stock makes no $$ and pays no dividend.
  • 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 88c and 90c.


Trading for the coming 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 now still looking for a further 4% correction in US Indices, to start 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 fallen 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 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) 88-90c. 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.
    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.

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, 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 (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), Gold (w), IBEX (w), NCM (w), NZ (w), QBE (m), Retail Index (w), RIO (w), S&P (w) STOXX (w) & WES (w).

Bearish: BHP (m), 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% correction for overseas markets. 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 have reached 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, getting close or completed.


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.

I remain a comfortable buyer of bank stocks into any correction that send yields 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 almost completed a strong rally towards the 1,400 area.

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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