Market Matters Report / The Hickman Report Saturday 16th August 2014

By Market Matters 16 August 14

The Hickman Report Saturday 16th August 2014

The Hickman Report Saturday 16th August 2014

 


Market Matters Summary for Saturday 16th August 2014

  • The ASX200 closed up 131 points (2.4%) last week reversing the previous week’s losses and outperforming major indices, the US Dow was up 109 points (0.7%) and the German DAX up 84 points (0.9%). The strong performance locally was courtesy of some excellent performance by a number of our heavyweight stocks e.g. BHP (demerger talks), Bendigo Bank, CSL, Crown, Suncorp & Telstra.
  • The US and European Indices traded as anticipated last week, having mild corrections to their previous weeks steep losses. I believe this week will determine their medium term direction; I am 50-50 right now if they will continue the correction.
  • Interest rates continue to fall with German 10-year bonds making record lows on Friday, falling under 1% - the free money continues. Overall, equities should perform extremely well until we see interest rates rally in major world economies – sorry New Zealand.
  • I believed a rally in interest rates was about to unfold a few weeks ago but with recent world economic data patchy at best, I can now see the ECB undertaking further QE action, plus further China stimulus remains a possibility. So until the music stops, yield pays. 
  • Lurking in the background remains concerns over inflation for the US, UK & Australia. A worrying trend locally on employment and a strong $A I believe is likely to keep interest rates at 2.5%, or even fuel another cut.
  • I am starting to get more bullish for the next 12 months, cash pushes markets, the amount of money sitting in cash within global portfolios is at its highest level since 2012, according to a fund manager survey by Bank of America Merrill Lynch, with double the number of investors building positions in the defensive asset class in August ¬compared to the month before. This equals buy dips.
  • Fundamentally I maintain a longer term concern around rising interest rates in the US, driven by wages growth that will turn off the “free money tap” and picking the timing of this transition will greatly enhance returns from equity portfolios but it now feels much further away.
  • Volatility is increasing in both stocks and the index by definition improving both the opportunities and the risks. I remain a very happy buyer of any decent pullback in the market, 5300 is great value unless rates rally. Falls on Geopolitical concerns I believe should be bought.
  • I repeat from last week, my prediction of a +10% corrections for the Russell 2000 (US small caps) and German DAX indices has unfolded exactly as anticipated, BUT notably they are now very close to my targets – hence how much further do they fall? Other Indices fall?

 

What Mattered Last Week

Last week was all about reporting season for local stocks as the ASX200 retraced 64% of its recent falls, ideally we will see one more attempt at the 5,300 area for some excellent buying opportunities but it feels far away at present. In this volatile environment it’s vital to have stocks and levels identified to purchase ahead of news and then be prepared to act against the crowd assuming the news has not “moved the goal posts”.

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

  • Positive Performance – Bendigo Bank (BEN) +6.2%, Crown (CWN) +5%, CSL Ltd (CSL) +10.2%, Flight Centre (FLT) +3.1%, Macquarie (MQG) +2.5%, REA Group (REA) +8.7%, Suncorp (SUN) +7.3% & Westpac (WBC) +3.2%.
  • Negative Performance – Boral (BLD) -2.3%, James Hardie (JHX) -6.4% & JB Hifi (JBH) -8.8%.
  1. I am holding ~20% in cash, with approximately equal weighting in Ansell (ANN), Commonwealth Bank (CBA), Challenger (CGF), M2 Group (MTU), & Seven West Media (SWM). Also note from my positions I am net negative the overall index via XJO and Westpac options.
  2. I am likely to alter the CBA – Westpac spread next week as it is not working to-date as money from the weak ANZ and BOQ has unfortunately flowed into Westpac, pushing the bank up.
  3. The 3 that are very close to my buy areas for next week are Bank of Queensland (BOQ), Flight Centre (FLT) & Seek (SEK).

What Matters this week

  • The ASX200 will open around 5575 on Monday after Friday’s mixed day overseas. I am currently 50-50 whether the ASX200 will retrace back towards 5350 for a buying opportunity but individual stocks will be volatile with AMP, FMG, BHP, NCM, QBE, CGF,WES and SEK all reporting. 
  • My view that the resource stocks may get rerated back to the market gained traction on Friday with talk of a BHP demerger creating 2.3% rally in the “Big Australian”. It will be interesting to see if the buying follows through next week – it fell 20c in the US. Overall, if the stock gets very excited, I would be looking to switch from the market underperformer, especially due to its huge dependency on Iron Ore.
  • Please note most trading and investing opportunities happen in less than 5% of the time, i.e. 3 weeks of the year, and one of these timeframes I believe is approaching fast.
  • Watch for specific ideas in morning reports and Alerts when I transact.

Potential Investing opportunities for the coming week

  • My “trading” stops on Ansell (ANN) remain under $18.50, Challenger (CGF) under $7.40, M2 Communications (MTU) remains below $6.10 & Seven West Media (SWM) under $1.84.
  1. I can buy Seek (SEK) around $15.50 with stops under $13.50.
  2. I can buy Bank of Queensland (BOQ) around $11.30 with stops under $10.50 – I may buy ½ early.
  3. I can buy Flight Centre (FLT) around $41- 42 with stops initially under $38.
  4. I can buy Macquarie Bank (MQG) around $54.

Potential Trading for the coming week

  • After last week’s strong rally I am 50-50 and expect a choppy week from the ASX200. 

A list of some sleepers are below, a few have already started to show signs of life, we will look to continually add to this list over coming months:

  • AWC, CSE, CSS, DCC, FXJ, KCN, KDL, LEI, & 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), BOQ (m), CBA (m), CSL (m), Dow (m), Fairfax (m), IBEX (m), MTU (m), NASDAQ (m), Nikkei (m), OZL (m), RMD (w), SEK (m), S&P (m), & SWM (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (w), BHP (m), CWN (m), Dax (w), FTSE (w), Gold (w), Hang Seng (w), IBEX (w), REA (m), RIO (w), S&P (w), STOXX (w), SUN (w), TLS (m), Vocus (w), WOW (m) & WPL (m).

Bearish: BOQ (d), China (m), Copper (m), NASDAQ (w), FMG (w), NCM (w), NZ (w), QBE (w) & WES (w).

  • 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.

Portfolio Holding

Last week our portfolio held ok with MTU again making up Westpac shorts as the ASX200 rallied +2.4%.

  1. Ansell (ANN) +2.4%.
  2. Challenger (CGF) +2%.
  3. Commonwealth Bank (CBA) +1.3% v shorts in Westpac +3.2%.
  4. M2 Group (MTU) +6.4%.
  5. Seven West Media (SWM) +2.6%.
  • I am long DCC & KDL as “sleepers”.
  • Cash, around ~20%.

Australian ASX200

I remain mildly bullish on a longer term basis; I will aggressively buy the above mentioned 3 stocks into any further pullback.

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 – Volatility Index VIX Weekly Chart

Chart 6 – The US 10 year Interest Rate Monthly Chart

Chart 7 – New Zealand 50 Index Monthly Chart


American Equities

The American indices are not all moving together at present, the Russell 2000 has fallen as expected but the Dow and S&P remain resilient. Technically, I still expect another 8-10% fall in the NASDAQ from the 3,990 region that should commence soon.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Dow Jones Index Daily Chart

Chart 10 – S&P 500 Monthly Chart

Chart 11 – S&P 500 Weekly Chart

Chart 12 – Russell 2000 Index Monthly Chart

Chart 13 – NASDAQ Weekly Chart

Chart 14 – Canadian S&P/TSX Composite Index Monthly Chart


European Indices

The DAX and IBEX have basically reached my target areas and I would no longer be short European Indices.

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 very positive, led by the Hang Seng. The Nikkei continues to be volatile and is now threatening a decent “ABC” style correction.

The China Index remains bearish long term with another +18% downside, however, short term I think the strength looks likely to continue.

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. There are small signs of this emerging at present from the US but the local economy is faltering so rates are likely to remain lower for longer.

Chart 23 – BHP Weekly Chart 

Chart 24 – BHP Daily Chart 

Chart 25 – Woodside (WPL) Monthly 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 - OZ Minerals (OZL) Monthly Chart 

Chart 31 – CBA Quarterly 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 – Challenger Financial (CGF) Monthly Chart 

Chart 39 – Suncorp Group (SUN) Monthly Chart 

Chart 40 – Insurance Australia (IAG) Monthly Chart 

Chart 41 – QBE Insurance Monthly 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 – Telstra (TLS) Monthly Chart 

Chart 48– M2 Group Ltd (MTU) Monthly Chart 

Chart 49 – Crown Resorts Ltd (CWN) Monthly Chart 

Chart 50– Ansell Ltd (ANN) Monthly Chart 

Chart 51– CSL Ltd (CSL) Monthly Chart 

Chart 52 Ramsay Healthcare (RHC) Monthly Chart 

Chart 53– Resmed (RMD) Weekly Chart 

Chart 54 Fairfax Media (FXJ) Monthly Chart 

Chart 55 – Seven West Media (SWM) Monthly 

Chart 56 Flight Centre (FLT) Monthly 

Chart 57– Australian Dollar (AUD) Weekly Chart

The $A is looking choppy and is currently holding after a good bounce, I am 50-50 just here.


Commodities

Gold remains volatile moving me to a 50-50 scenario that it may “abc” up towards US$1,400/oz., or fall towards 1,100/oz.

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.

Iron Ore is plumbing 5 year lows but related stocks are definitely pricing this area to hold comfortably.

Chart 58 – Gold Monthly Chart

Chart 59 – Copper Weekly Chart

Chart 60 – Iron Ore Monthly

 

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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