Market Matters Report / The Hickman Report Saturday 21st December 2013

By Market Matters 21 December 13

The Hickman Report Saturday 21st December 2013

Christmas rally may turn us neutral

Market Matters Summary for 21st December 2013

  • I remain bearish the ASX200 short term but with a very close stop at 5285.
  • A break of 5285 will turn me neutral but not bullish considering the position of other international markets.
  • Overall I am bullish for 2014, but do still believe that some decent corrections are close at hand.
  • Subsequently, investors should have a shopping list of stocks ready to buy if we fall under 5,000.
  • I will be watching BOQ, CWN, CSL, FOX, FMG, QBE, REA, RMD and SEK to buy at lower levels as outlined beneath.
  • Gold stocks are showing excellent signs of a bottom; I am comfortable topping up positions into down days.
  • Below is my weekly video update, looking shaky on my Christmas rally call after Fridays follow through strength.
  • See my video market update.

 

The Overall Market

  • Last week, the ASX200 snapped back with a vengeance, rallying 172 points (3.4%) on Thursday and Friday combined.
  • The performance was well above the Dow's 2.1% equivalent rally, which is not uncommon for this time of the year.
  • The catalyst was Thursday morning's FOMC announcement of a gradual commencement to taper stimulus.
  • In simple words, the American economy is improving nicely e.g. last night, the US GDP of 4.1% beat forecasts by 0.5%.
  • Unfortunately, the domestic economy is not showing similar signs of improvement which is reflected by the $A 9c fall.
  • The US market's forecasted 8% correction is clearly not unfolding, but I remain comfortable holding 40% in cash.
  • I stress if we get this retracement, it’s an excellent buying opportunity for 2014 and not time to panic sell.
  • My work on correlations with clearer indices (e.g. NZ50 on chart 8) has the 4,800 level for the ASX200 flashing in big lights.
  • Last week, the NZ market continued to unfold as expected closing down 0.8%.


What Mattered Last Week

Last week was again weak for the ASX200 into Wednesday's close, prior to the huge 2 day rally which resulted in a net gain of 167 points. I was expecting a 100-125 point bounce, but as I have often mentioned, you cannot ignore the seasonal factors in play at this time of year.

  1. Over $8.6Bn of dividends being returned to investors have hit bank accounts or used for DRP.
  2. Fund managers want good returns, so why sell in the last few days before January 1st.
  3. Well over 80% of the time, the ASX200 has risen from now into the first week of January.

The theme last week remained similar, except for the FOMC; i.e. stock downgrades, poor domestic economic fundamentals, weakening $A and average IPO performance.

  • Wotif fell 38% after a downgrade and REA fell 13% at one stage after the MD & CEO resigned.
  • IPO's continued to trade poorly e.g. NSR -0.5%, CVO -10.5%, DSH -9.6%, NEC -3.4%, LHC -11% and FLN+126%.
  • With local institutions having spent approx. $7bn last year on poor IPO's, the $7-8bn of anticipated IPO's in the first half of 2014 are likely to be priced more attractively, but again create a cash drain on the overall market.
  • Last week again saw some significant short covering (profit taking of battered stocks) e.g. MND +21%, UGL +11%, WOR +8%, QAN +8.5% & QBE +8%.
  • Gold stocks again proved very interesting, rallying after a $40 fall in gold on Thursday night e.g. NCM +5.2% & RRL +4.9%.
  • In a short term bullish signal, the local market ignored China's cash rate surging and equities falling for a ninth straight day


What Matters This Week

  • The ASX200 rallied hard at the end of last week and is now only 10-20 points away from major resistance.
  • Shareholders have received $8.6bn in dividends, explaining why the ASX200 has rallied over 80% of time from this period into January (a significant portion of this will be absorbed by the IPO’s).
  • Personally, I think Fund Managers giving the market and nudge and simply not selling aids a great deal.
  • A close over 5285 will turn me neutral on the market short term.
  • However, I will remain net negative the ASX200 while we are below 5285
  • I will continue to watch gold stocks carefully as I am bullish at these levels and they are generating some buy signals.


Trading for the coming Week

  • I will remain bearish the ASX200 sub 5285, but a break off here will turn me neutral, not positive.
  • The gold sector has had an awful year; gold stocks look as unloved as the retail sector was in June 2012 prior to a 65% rally. I am buying slowly now while everybody has been selling, looking for a strong corrective rally minimum.
  • I am recommending buying long dated NCM calls for trading / option investors.
  • Investors should have a set plan for the correction as it unfolds. I have increased cash holdings and will simply buy my preferred equities into weakness. I have again refined these below:
  1. CWN -$15. 
  2. FOX - $31
  3. BOQ - $11
  4. FMG - $5
  5. REA - $35
  6. RMD - $4.50
  7. CSL - $60
  8. QBE - $10.75
  9. SEK - $11.50

N.B. I am remaining patient on entry price levels as a lot of people are choosing these stocks with offshore earnings exposure for 2014.

  • Higher risk plays are NCM - $7.50, OGC - $1.55 and RRL - $3.


Market Matters’ View

The below views are illustrated in detail by the charts beneath.

Bullish: BOQ (m), CBA (m), CSL (m), CWN (m), Dow (m), FOX (m), FMG (w), FTSE (w), IBEX (m), NASDAQ (m), NCM(w), Nikkei (m), OGC (m), REA (m), SEK (m), S&P (m), SUN (m), & WOW (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (w), BEN (m), BHP (d) & (w), Hang Seng (w), Gold (m), NAB (w), NCM (m), QBE (m), RIO (w), STOXX (w).

Bearish: China (m), Copper (m), NZ (w), Retail Index (w), WBC (w), WES (w) & WPL (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 remain bullish on a monthly basis, but still just bearish on a weekly basis (stops over 5285). Most people were too afraid to buy closer to 5,000 because of media coverage surrounding the US debt default situation – then fear of missing out emerged and 5,450 was quickly reached. Prior to November, every retracement reached hungry buyers, but this is vanished in early December. The path of least resistance is unclear after the recent significant turnaround. I remain wary of the potential 8% correction for overseas markets and the weekly “rising wedge triple top” formation on chart 3.

 

 

 

 

 

 

 

 

 

 

American Equities
The American indices look very vulnerable to an 8% correction; the Dow is reaching my target areas. However, weakness in the US should be aggressively bought as the monthly set ups and growing economies are overall bullish.








European Indices
The European indices now look net bullish for 2014 with the FTSE in a classic 3-4 consolidation prior to an assault on the 7000 level.






Asian Indices

Asian indices remain net positive but messy short term. The Nikkei continues to trade out of control, under the weight of stimulus and intervention.






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 – my view is that the next major move in rates is up. Overall the major stock’s in the ASX200 remain clearly positive, however, I have reduced exposure into recent strength positioning myself for a potential pullback to buy back in - was close on some stocks mid last week.

I am a little concerned that everybody is calling stocks with exposure to overseas earnings to outperform…how crowded is this trade?

Stock picking remains at a premium as is demonstrated in 2013 with BOQ outperforming in the Banks and FMG in the resources space.




























Australian Dollar

The $A is looking very heavy, the recent bounce was a little greater than anticipated breaking 97c, renewed weakness now looks likely with an ultimate target of 81-82c.




Commodities

The gold chart looks bullish longer term, targeting fresh recent highs likely over $2,000 suggesting inflation - confirmation requires a close over 1,480. On a monthly basis, gold remains bearish targeting new lows for 2013/14 under 1,180. Conversely, a sharp bounce towards the 1,400 area would not surprise.

Also, the amount of money tied up in gold ETF’s that did not exist pre 2004 remains. Having recently visited China, the only two investments that interest locals are property and gold…not reflected by the price yet.

Copper remains negative on a longer term basis, a very similar chart pattern to Newcrest Mining and we all saw what happened there.


 

 

Please note this is my personal TECHNICAL opinion of markets and "General Advice" taking no account of individual’s circumstances.

Have a great Christmas,

Shawn Hickman

 

 

 

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