Market Matters Report / The Hickman Report - Saturday 18th October 2014

By Market Matters 18 October 14

The Hickman Report - Saturday 18th October 2014

The Hickman Report - Saturday 18th October 2014

Overall Market Matters macro view

Australian equities rose for the 4-days at the end of last week, closing 83-points higher (1.6%), however weakness persisted in the US where the S&P500 closed 1.0% lower. The standout themes continued from the previous week as markets weighed up world economic slowdown against prolonged Central Bank stimulus, with the threat of Ebola thrown in to scare all but the bravest investor. As we quoted last week, the best opportunities are presented when others panic, or are too scared to act. As we have been expecting in recent reports the strength was led by the Banking Sector which is up 2.3% over the last 5 days while the resources struggle to remain in the black. I expect more decent and exciting moves ahead that can be summarised below:

  • With the Dow closing up over 260-points on Friday night the market looks set to start off far more optimistically on Monday, with the futures implying the ASX200 will be up around 50 points.
  • CBA is likely to open 5-6% above our $73-74 buy zone reached last Tuesday. I expect this area to fail at least on the first attempt and the stock to correct $1.50-2 minimum, implying that banks will retrace around 2% and hence the ASX200 will likely follow.
  • I remain bearish the large Iron Ore producers targeting fresh lows for 2014 e.g. 5-6% more weakness in BHP.
  • My preferred scenario is the Dow makes one final low for this current correction, to around the 15,500-750 area i.e. 4-5% lower. This view is supported by the Russell 2000 (small cap index) closing lower on Friday night when other indices surged.

As covered recently I am looking for a decent low in mid/late October for run up into December, locally we may have seen our low but I feel the US has further to go. The below statistic remains exciting:

  1. Since 1980, the October/November/December period on the S&P500 has a median gain of nearly 5.3% (7.8% since 2001).

This week there are noticeably less clear current technical charts:

Bullish: A close over 3000 is bullish for the Euro Stoxx 50, the Spanish IBEX remains bullish, the German DAX will be bullish on a close over 9000, Bank of Queensland (BOQ) is targeting $13.50 area and Seek (SEK) is a good buy under $15.50,


Bearish: The Dow Jones should see another low in 2014, BHP is targeting fresh 2014 lows and the Crude Price should fall further.

My conclusions:

  • This pullback, which I think may be complete in the ASX200, is one to be bought and nothing more sinister.
  • The US Indices are looking to have further weakness but Europe is emerging surprisingly stronger.
  • If one final pullback in the US occurs weakness locally should be bought.
  • I am not convinced we will rally back over the 5680 August high but I expect to reassess at the 5400-50 area (4-5% higher).
  • If stocks hit buy zones do not be afraid to “pull the trigger”.

What Matters this week

The ASX200 is looking to open about 50 points higher on Monday, around 5325; I anticipate this gap opening will fade over coming days.


Potential Investing opportunities for the coming week

  • I am a buyer Commonwealth Bank (CBA) if it retraces $1.5-$2 from $77 area, plus ANZ / BOQ into similar % retracements.
  • I remain a buyer of Seek (SEK) around $15.
  • I remain a buyer of Flight Centre (FLT) in the $40-42 area.

Potential Trading for the coming week

  • I am looking for failure on Monday and a 75-100 point retracement minimum.
  • Traders can buy Fortescue (FMG) under $3 looking for another 10% bounce minimum.
  • Traders can take profit on CBA purchased under $74.

  • Watch for specific ideas in morning reports and Alerts when I transact.


Portfolio Holdings

Last week my portfolio had a poor week underperforming the ASX200 which rallied 1.6%.

  1. ANZ Bank (ANZ) +2.3%.
  2. Ansell (ANN) -0.9%.
  3. Bank of Queensland (BOQ) +2.7%.
  4. Challenger (CGF) -5.8%.
  5. Commonwealth Bank (CBA) +2.3%.
  6. Flight Centre (FLT) -2.8%.
  7. Insurance Australia Group (IAG) -1.7%.
  8. Myer Holdings (MYR) -4.3%.
  9. Seven West Media (SWM) -1.3%.

*Please note I have held my stocks as I am short calls BUT otherwise I would be out of all except ANZ, Bank of Queensland and Flight Centre.

*I will be rebalancing / seeling a number of above this week as my patience has gone, especially with Myer (MYR). Watch for alerts.
** Any further Ebola scares are likely to hurt FLT, but if we back mankind to deal with this medical issue it will become an excellent buying opportunity.

  • Cash, around ~10%.


Australian ASX200

I am now neutral the ASX200 for the week ahead but still positive overall into Christmas.

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 have not moved together:

  • The Russell 2000 has now hit my initial retracement target and could be potentially embark on a rally into Christmas.
  • The NASDAQ has also hit my retracement target.
  • The Dow & S&P500 look to have further downside first.

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

I would still rather be marginally long at current levels looking to add into any weakness.

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

Most Asian indices are now neutral but China remains firm.

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 / a weakening Europe has resulted in me now recommending a far more balanced portfolio. I have still have no interest in resource stocks.

Chart 23 – BHP Daily Chart

Chart 24 – Santos (STO) Weekly 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 – CBA Quarterly Chart

Chart 31 – ANZ Bank (ANZ) Monthly Chart

Chart 32 – Westpac Bank (WBC) Weekly Chart

Chart 33 – National Bank (NAB) Weekly Chart

Chart 34 – Macquarie Bank (MQG) Weekly Chart

Chart 35 – Bank of Queensland (BOQ) Weekly Chart

Chart 36 – AMP Weekly Chart

Chart 37 – Challenger Financial (CGF) Monthly Chart

Chart 38 – Suncorp Group (SUN) Monthly Chart

Chart 39 – Insurance Australia (IAG) Monthly Chart

Chart 40 – QBE Insurance Monthly Chart

Chart 41 – Wesfarmers Ltd (WES) Weekly Chart

Chart 42 – Woolworths Ltd (WOW) Monthly Chart

Chart 43 – Seek Ltd (SEK) Weekly Chart

Chart 44 – Real Estate Australia Group Ltd (REA) Monthly Chart

Chart 45 – Telstra (TLS) Monthly Chart

Chart 46– M2 Group Ltd (MTU) Monthly Chart

Chart 47 – Crown Resorts Ltd (CWN) Monthly Chart

Chart 48– Ansell Ltd (ANN) Monthly Chart

Chart 49– CSL Ltd (CSL) Monthly Chart

Chart 50 Ramsay Healthcare (RHC) Monthly Chart

Chart 51– Resmed (RMD) Weekly Chart

Chart 52 - Fairfax Media (FXJ) Monthly Chart

Chart 53 – Seven West Media (SWM) Monthly

Chart 54 - Flight Centre (FLT) Monthly

Chart 55 – Coca-Cola Amatil (CCL) Weekly

Chart 56 - Australian Retail Index Monthly

Chart 57– Myer Holdings (MYR) Weekly

Chart 58– JB Hifi (JBH) Monthly

Chart 59– Harvey Norman (HVN) Monthly

Chart 60– Australian Dollar (AUD) Weekly Chart

The $A looks to have “cracked” and technically I am ultimately targeting the 81c area.


Commodities

Gold remains very weak and I believe it falls towards the 1,100/oz 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.

Crude Oil remains negative at present.

Chart 61 – Gold Monthly Chart

Chart 62 – Copper Weekly Chart

Chart 63 – Crude Oil 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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The author holds an interest in the financial products of ANN, ANZ, BOQ, CBA, CGF, FLT, IAG, KDL, MYR & SWM.