Market Matters Report / The Hickman Report - Saturday 11th April 2015

By Market Matters 11 April 15

The Hickman Report - Saturday 11th April 2015

The Hickman Report - Saturday 11th April 2015

Afternoon All,

The ASX200 had a quiet, but firm week, allowing me to stand back and illustrate why I believe investors will need to be very smart with their decision making over the coming months. Firstly, let’s look at the performance of some major Stock Indices so far in 2015:

1. German DAX +26.2% - The rally has been fuelled by massive ECB stimulus.
2. Chinese Shanghai Composite +24.7% - The rally has been fuelled by opening of borders to overseas investors.
3. Japanese Nikkei +14.1% - The rally has been fuelled by massive local stimulus.
4. ASX200 +10.3% - The strength has come from the “yield play” stocks due to record low interest rates, but the resource sector has been a large drag.
5. Dow +1.3% - As the US economy improves, it faces rising interest rates, which has led to short term investors looking elsewhere.

Clearly from the above, a strong economy with improving company profitability has not been relatively positive for the Dow in 2015. Markets are currently being driven by interest rates and these are about to start rising in the US, whereas in Europe, 25% of all Government debt has a negative yield! Secondly, let’s look at some good, and poor, performing local stocks that are catching my eye in 2015 – the returns do not include dividends.

1. Qantas (QAN) +39.2%                     Fortescue (FMG) -33.8%
2. Macquarie Bank (MQG) +37.9%       Woodside (WPL) -8.2%
3. Resmed (RMD) +37.6%                    Suncorp (SUN) -4.6%
4. Harvey Norman (HVN) +29.8%          Woolworths (WOW) -3.7%
5. Newcrest (NCM) +29.1%                  Carsales (CAR) -2.2%
6. Echo Entertainment (EGP) +24%      RIO Tinto (RIO) -1.9%

Unfortunately I can imagine a significant number of investors have been holding at least 4 of the above 6 poor performers – note we have been negative / neutral on all 6 of these. We all know the banks have had an excellent start to the year, with the sector up almost 13% but as Qantas illustrates it’s looking ahead not into the rear mirror that matters. Three events caught my eye last week that I believe will significantly influence markets over the next 6-12 months:

1. The RBA left interest rates unchanged on Tuesday. While I still expect a cut in May / June, the futures markets are now only factoring the one cut for the next 12 months, not two. This raises the question of what can push the ASX200 strongly through the 6000 area?
2. China cut the local tax rate for its miners; I believe this is likely to be the start of government subsidies which is clearly very bad for our miners.
3. Shell is taking over British Gas for $A91billion – I believe M&A activity will remain hot in 2015.

Summary:

1. I still believe the ASX200 will push towards 6100 over coming weeks, likely driven by the “yield play” but I will be selling this strength if it occurs.
2. I am likely to move towards 25-30% cash if the ASX200 rallies towards 6100, with CGF a likely candidate to be sold into strength.
3. Personally I am likely to hold BOQ for the franking credits (it pays a 36c fully franked dividend next week), my other 3 stocks IIN, MGR and VOC are not strongly correlated to the index and hence I am likely to hold.
4. I continue to have no interest investing the mining sector.

*Watch for alerts next week.

1. For traders – (a) Watch FMG price action very carefully next week, I am in damage control (b) Santos (STO) calls are likely to look good on Monday and potentially will more than pay for any losses in Fortescue (FMG) calls.

What Matters this week

The ASX200 looks likely to open up around 10 points on Monday.


Potential Investing opportunities for the coming week

I am looking to be a seller of equities around 6100.

Potential Trading for the coming week

• I will be looking to exit Fortescue (FMG) calls early next week. The stock twice looked good last week only to have a deluge of bad news hit the stock.
• Ideally I will look to take profit on long Santos calls over $7.70.
• I will be looking for levels to buy “cheap” XJO puts into strength. 


 

Portfolio Holdings

My portfolio performed in line with the market where the ASX200 rallied 1.2%. Fortunately the STO trading position helped nicely pay for the disappointing FMG position.

1. Bank of Queensland (BOQ) +3.1% - medium term investment – note I purchased on Friday.
2. Challenger (CGF) +2.1% - medium term investment.
3. iiNet (IIN) -0.1% situation stock.
4. Mirvac (MGR) +1% - medium term investment.
5. Vocus (VOC) -0.7% - Medium term investment.

• Cash for future purchases, ~20%.

NB I do not mention “trades” in this section as I only risk 1-2% generally in my trades.

Australian ASX200

I continue to look to spread my portfolio into more growth stocks in coming weeks and cash.

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

Chart 3 – ASX200 Daily Chart

Chart 4 - SPI (Share Price Index) Futures 60 mins Chart

Chart 5 ASX200 REIT Index Monthly Chart

Chart 6 Volatility Index VIX Weekly Chart

Chart 7 – The US 10-year Interest Rate Monthly Chart

 

American Equities

The American indices continue to show signs of topping out for 2015 but a final blow-off now feels likely to be led by the previously poor performing Russell 2000 Index as opposed to the S&P500.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Dow Jones Index Daily Chart

Chart 10 – S&P500 Monthly Chart

Chart 11 – NYSE Composite Index Monthly Chart

Chart 12 – Russell 2000 Index Monthly Chart

Chart 13 – NASDAQ Weekly Chart

Chart 14 – The Canadian Composite Monthly Chart

 

European Indices

European Indices still look set to rally another 2-3% aided by ECB stimulus.

Chart 15 – Euro Stoxx 50 Weekly Chart

Chart 16 – FTSE Weekly Chart

Chart 17 – Spanish IBEX Monthly Chart

Chart 18 – German DAX Monthly Chart

Chart 19 – German DAX Daily Chart

 

Asian Indices

Asian indices are neutral at present. However, China remains very bullish as it opens its market to offshore investors and Japan is receiving great strength from ongoing aggressive QE.

Chart 20 – Hang Seng Weekly Chart

Chart 21 – China Shanghai Composite Monthly Chart

Chart 22 – Japanese Nikkei 225 Monthly Chart


Australian Stocks

Quality stocks with sustainable yield have been standouts but some industrial stocks that are now looking good. Overall I am now a net seller of the “yield play” and looking to buy growth stocks BUT not resources.

Chart 23 – BHP (US) Monthly Chart

Chart 24 – BHP Weekly Chart

Chart 25 – Woodside (WPL) Weekly Chart

Chart 25b – Santos (STO) Weekly Chart

Chart 26 – RIO Tinto (RIO) Weekly Chart

Chart 27 – Fortescue Metals (FMG) Weekly Chart

Chart 28 – Vale (US) Weekly Chart

Chart 29 – Newcrest Mining (NCM) Monthly Chart

Chart 30 – Regis Resources (RRL) Weekly Chart

Chart 31 – Barrick Gold Corp. (US) Monthly Chart

Chart 32 – CBA Quarterly Chart

Chart 32b – CBA Daily Chart

Chart 33 – ANZ Bank (ANZ) Monthly Chart

Chart 34 – Westpac Bank (WBC) Weekly Chart

Chart 34b – Westpac Bank (WBC) Daily Chart

Chart 35 – National Bank (NAB) Weekly Chart

Chart 36 – Macquarie Bank (MQG) Weekly Chart

Chart 37 – Bank of Queensland (BOQ) Weekly Chart

Chart 38 – AMP Weekly Chart

Chart 39 – Challenger Financial (CGF) Monthly Chart

Chart 40 – Suncorp Group (SUN) Monthly Chart

Chart 41 – Insurance Australia (IAG) Monthly Chart

Chart 42 – QBE Insurance Monthly Chart

Chart 43 – Wesfarmers Ltd (WES) Weekly Chart

Chart 44 – Woolworths Ltd (WOW) Quarterly Chart

Chart 45 – Seek Ltd (SEK) Weekly Chart

Chart 46 – Telstra (TLS) Monthly Chart

Chart 47– M2 Group Ltd (MTU) Monthly Chart

Chart 48 – Vocus Communications (VOC) Weekly Chart

Chart 48b – TPG Telecom (TPM) Monthly Chart

Chart 49 – Westfield Corp. (WFD) Monthly Chart

Chart 50– CSL Ltd (CSL) Monthly Chart

Chart 51 Ramsay Healthcare (RHC) Monthly Chart

Chart 52– Resmed (RMD) Weekly Chart

Chart 53 - Fairfax Media (FXJ) Monthly Chart

Chart 54 – Crown (CWN) Monthly

Chart 55 – Coca-Cola Amatil (CCL) Monthly

Chart 56– Myer Holdings (MYR) Weekly

Chart 57– JB Hifi (JBH) Monthly

Chart 58– Harvey Norman (HVN) Monthly

Chart 59– Australian Dollar (AUD) Weekly Chart

The $A continues to decline with an ultimate technical target now well under 70c.


Commodities

I am now neutral Gold as rising interest rates could easily derail the recent strength. I have divergence with the stocks looking average but the precious metal constructive.

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.

Crude Oil remains negative but I believe we now see a strong rebound towards $US58 barrel.

Iron Ore is 50-50 here BUT the trend is clearly down.

Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart

Chart 63 – Iron Ore 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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