Market Matters Report / The Hickman Report - Saturday 10th May 2014

By Market Matters 10 May 14

The Hickman Report - Saturday 10th May 2014

The Hickman Report - Saturday 10th May 2014

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Market Matters Summary for Saturday 10th May 2014

  • The ASX200 rallied a meager 2 points last week, ignoring a +0.4% return by the Dow closing at an all-time high.
  • The Federal Reserve Chairman, Janet Yellen’s testimony this week clearly let the market know she is trying to generate some inflation – similar to Europe. She mentioned the current “reach for yield” that is occurring in capital markets and as we know the ASX200. Italian and Spanish 10 year bonds are under 3% - I feel this is crazy.
  • This has significantly helped domestic banks interest rate margins, they are in perfect position at present, but if the Fed gets their way and generates inflation, interest rates will rise... the Fed usually wins at least for a while.
  • I reiterate, I’m looking for a high in equities relatively soon. In 2013 the Dow fell -6.4% from the 22nd May & the ASX200 -11.8% from 15th of May, aggressively led by the banks who mostly topped in the 1st week of May – markets often repeat. The ASX200 has fallen 4 out of the last 4 Mays for an average decline of 4.33%.
  • I still believe the market will soon focus on rising bond yields as the US economy improves which is negative for stocks priced significantly around their relative dividend payouts = banks. It’s a matter of when.
  • Banks are 50% of a typical Australian private client portfolio Investor and they are too complacent over yield & this is never a successful mindset my estimate remains a 15-20% correction for the banks.
  • With interest rates rising, I believe investors MUST prepare to diverse out of banks or suffer underperformance.
  • Suncorp is now my preferred vehicle for dividends paying more than banks and benefiting $$ from higher rates.
  • Australia unfortunately has issues of a Government rebalancing the budget & a painfully strong $A for the RBA.
  • Tops are extremely hard to pick as markets like to go up and they often take a few attempts to fail. I am comfortably 75% in cash looking to buy a correction, note I am still net bullish for a year or two yet.

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What Mattered Last Week

Last week was very quiet overall with the exception of ongoing gyrations around American internet stocks, the market is focusing on very optimistic future earnings and becoming nervous hence the theme clearly remains “head for safety”.

On the performance front, the below stocks caught my eye over the last 5 trading days:

  • Positive Performance – Commonwealth Bank (CBA) -0.55, JB Hifi (JBH) +3%, Leighton’s (LEI) +4.7%, Oilsearch (OSH) +3.5%, and Santos (STO) +3.4%.
  • Negative Performance  ANZ Bank -4.7%, Boral (BLD) -4%, Carsales (CRZ) -4.8%, Real Estate.com (REA)-3.9% and Iron Ore approaching 2 year lows.
  1. Recently I moved to 75% cash with Suncorp my only core long stock. If I am wrong and we have no correction I simply make a small amount of interest and can relax and look to reinvest in coming months. 
  2. Be patient, it can be a frustrating wait, last Wednesday the ASX200 tested major support at 5400 only to bounce, I remain confident a decent retracement is coming BUT it may take weeks to unfold especially as overseas indices remain constructive.

What Matters this week

  • No major change after a “nothing” week.
  • I remain bullish going forward for the next year, or two, and am not scared by the increasing number of “Doomsday Merchants” getting published at present. However, I still expect a classic “sell in May and go away” correction to unfold shortly, likely led by the banks.
  • Overall I believe the current 5 year bull market is maturing fast and hence retracements will become deeper creating buying opportunities.
  • My estimate where the overall market gives great value is around 5050, the lows of 2014, and I see the market as currently overvalued above 5500 where it reached last week especially with a strong $A and weakening Iron Ore price.
  • For me now sitting in a large % cash holding comes down to patience and constant evaluation of opportunities.

Trading for the coming week

  • Buy Fairfax under 90c with stops under 83c and a target over $1.50.
  • Sell Magellan (MFG) on bounces towards $13 with a target of $10 where I become a buyer.
  • I am a keen buyer of Bank of Queensland under $11.
  • Although Crown (CWN) has hit my buy area I am now leaving the stock after recent bad publicity around the Chairman, concerns over Sri Lanka licence and a crackdown in Macau on illegal transactions.
  • Overall I am negative equities in general into any strength / fresh 2014 highs.
  • If the NASDAQ and Dax make fresh 2014 highs I will be looking for “shorting” opportunities.
  • I will start to look for buying opportunities if equities correct, watch for am reports and Alerts.

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), CBA (m), CSL (m), Dow (m), Fairfax (m), FTSE (w), IBEX (m), NASDAQ (m), Nikkei (m), REA (m), RMD (w), SEK (m), S&P (m), SUN (m), Vocus (w) & WPL (m).

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

Bearish: Banks (w), BOQ (w), BHP (m), China (m), Copper (m), Gold (w), Magellan (w) & NCM (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 monthly basis but I anticipate a decent correction from May – July.

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 in early March and since then the NASDAQ has fallen 8.7%. Ideally we will now see a rally to fresh 2014 highs prior to a deeper correction but we are monitoring this daily as tops are hard to pick and trade.

The NASDAQ and DAX are the clearest indices and both remain bullish longer term, I still remain mildly positive the NASDAQ, ideally targeting 3,800 area into May prior to a +10% correction, but the “easy money” has gone.

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 may over and an assault on 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 twice recently), which will lead to an eventual underperformance from bank stocksthere is clearly no sign of this at present.

  • I am recommending switching at least one bank holding to SUN, or after May dividends.
  • Also, NAB and Bank of Queensland are likely to be my preferred banks at some stage in the coming year.

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 – JB Hifi (JBH) Weekly 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 – Macquarie Bank (MQG) weekly Chart

Chart 36 – Bank of Queensland (BOQ) Weekly Chart

Chart 37 – AMP Weekly Chart

Chart 38 – Suncorp Group (SUN) Monthly 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) Weekly Chart

 Chart 45 – Real Estate Australia Group Ltd (REA) Monthly Chart

 Chart 46 – Vocus Communications (VOC) Weekly Chart

 Chart 47 – 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 completed a strong rally towards the 1,400 area. Next stop 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
marketmatters.com.au

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