Market Matters Report / The Hickman Report Saturday 20th September 2014

By Market Matters 20 September 14

The Hickman Report Saturday 20th September 2014

The Hickman Report - Saturday 20th September 2014

Overall Market Matters macro view

Sydney has produced a beautiful spring today, so let’s try and produce some market insights to match!

The sell Australia theme continued last week with the ASX200 closing down 1.8%, while the Dow was up 1.7%. The local stock market is basically all about the $A at present. The two recent major retracements of over 10% in the ASX200 coincided with significant falls in the $A (May 2012 & October 2013). My interpretation of the numbers show the ASX200 falls approximately 85% of the currency fall. Subsequently, if we extrapolate to todays circumstances:

  1. If the $A holds at the current 89c area, we are at the correct ASX200 area of 5425 – spend 20%.
  2. If the $A falls to initial support at 87c, the ASX200 should target the 5320 area – spend 25%.
  3. If the $A falls to the “round number” of 85c, the ASX200 should target the 5220 area – spend 25%.
  4. If the $A falls to major support at 81c, the ASX200 should target the 5015 area – spend 30%.

When I combine my bullish view on US interest rates, negative view on gold and significant caution on US equities at current levels I have to suspect there is a strong possibility that we may fall to one of the lower levels. A number of subscriber have asked me if it’s time to start buying after the local 5% correction in equities, led by the “yield play” stocks. Always the answer depends on an individual’s circumstances but I would be considering the %’s shown above.

The larger statistics are starting to align for a very exciting few months ahead. Especially when you consider there is $800 billion of retail money in bank deposits and $300 billion of superannuation in cash, all earning negative real returns after inflation.

  1. US equities have an 87% chance of falling over 1% this month, that targets the Dow at least 500 points lower.
  2. US equities have an average gain of 7.8% since 2001 in the October / November / December period.
  3. Hence if we get an ongoing correction into early / mid-October it should represent great buying.

The clearest current technical charts to me, largely macro again this week:

Bullish: US Interest rates to rise, supporting stocks with US earnings e.g. QBE, CSL & ANN, European stocks are firm but if we see fresh 2014 highs they are a sell.

Bearish: US Interest rates to rise hurting local banks gold remains negative, the ASX200 will test 5300-5350 minimum, US small caps will fall another 5-6% minimum.

My conclusions:

  • I remain negative equities at current levels and see clear risk / reward opportunities to the downside in overseas indices for a 5-10% correction minimum. – European equities may see fresh 2014 highs prior to weakening especially aided by the Scotland vote.
  • On balance I see the current 5% retracement in the ASX200 as likely to continue for a few weeks but the degree of the correction will be dictated by the $A,

What Matters this week

The ASX200 is looking to open down about 18 points on Monday, around 5415, but any major weakness of the $A below 89c on Monday may easily increase the fall.


Potential Investing opportunities for the coming week

  • Some of my “trading” stops have been hit as the market weakens: Ansell (ANN) are at $19.10, Challenger (CGF) under $7.40 (triggered), Insurance Australia (IAG) under $6.05 (triggered), Myer under $2.25 (triggered) & Seven West Media (SWM) under $1.70 (triggered). 
  • I can still buy Harvey Norman around $3.65 with close stops under $3.35.

Potential Trading for the coming week

  • I remain negative equities and would the local market around 5450.
  • My favourite 4 stocks into a sharp selloff are Macquarie around $53.50, Bank of Queensland around $11.30, Seek (SEK) around $15 and Flight Centre around $42. 

 

 

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

Portfolio Holdings

Last week my portfolio had an ok week outperforming the ASX200 which fell 1.8%. This is remains an excellent period for my short calls (Sophisticated investors only).

  • Ansell (ANN) -0.6%.
  • Challenger (CGF) -2.8%.
  • Commonwealth Bank (CBA) -3%.
  • Insurance Australia Group (IAG) -0.5%.
  • Myer Holdings (MYR) +0.5%.
  • Seven West Media (SWM) +0.9%.

*Please note I have held my stocks as I am short calls BUT otherwise I would be out of all except Ansell.

  • Cash, around ~15%.

Australian ASX200

I remain negative the ASX200 over coming weeks and will be watching correlation with the $A closely.

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 is underperforming as expected but the Dow remains strong. Technically, I still expect another decent pullback in the S&P soon but no triggers at present.

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 long at current levels looking to reverse into any failure of fresh highs for 2014.

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, now led by the Nikkei.

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 clear signs of this emerging at present from the US, but the local economy and especially Europe are faltering, so rates are likely to remain lower for longer. Stocks with US earnings are clearly the place to be at present.

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 US$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.

Iron Ore is still plumbing 5 year lows and related stocks are starting to “get the wobbles”.

Chart 61 – Gold Monthly Chart

Chart 62 – Copper Weekly Chart

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