Market Matters Report / The Hickman Report Saturday 23rd August 2014

By Market Matters 23 August 14

The Hickman Report Saturday 23rd August 2014

The Hickman Report Saturday 23rd August 2014

 


Market Matters Summary for Saturday 23rd August 2014

  • The ASX200 closed up 79 points (1.4%) last week adding to the previous week’s gains, but underperforming major indices courtesy of a weak mining sector. The US Dow was up 338 points (2%) and the German DAX up 246 points (2.7%)
  • As discussed in Friday’s morning report, I currently remain bearish domestic Iron Ore stocks and Friday’s 2% fall in the underlying commodity to close at major support of US$90/t will prove interesting next week. BHP closed down 39c (1%) in the US this Saturday morning AEST. Chinese manufacturing PMI data released this week was weaker than expected - their economy is slowing. See chart 61, the Iron Ore Price is falling, a BIG Canary in the coalmine. From a risk / reward basis I remain negative BHP, RIO and Fortescue (FMG). I could switch to Santos (STO) for investors wanting to remain exposed to resources – see chart 24.
  • The European Indices have recovered very well from their Geopolitical sell-offs and look set to follow the US Indices to fresh 2016 highs prior to any meaningful correction. Hence on balance I see higher prices for the ASX200 over coming weeks. Currently the advance to 6 year highs feels like people are getting hurt from holding monies in cash receiving negative real returns and jumping into better yielding equities.
  • However, I reiterate that this is a very mature advance and I still anticipate decent corrections in the US over the next 12 months so buying should be selective, not general in nature.
  • Interest rates will continue to be the boring, but dominant macro theme for equities over the coming year. Let’s simply stand back and “KISS” - Fundamentally, the market looks fully priced based on historical 12 month forward PEs and earnings, however, the collapse in 10 year bond rates & equity volatility should be leading to a significant equity rally on a relative basis. All local equities need is a sniff of earnings growth.
  • As stated last week, I am starting to get more bullish for the next 12-18 months, especially when we (not if) get a +10% correction in the US. This equals a VERY strong buy dips. People are getting understandably concerned on rates, especially around skilled wages inflation, but I believe this will create opportunity. After many years of QE the Fed I believe will take their time to turn off the tap and ensure its market orderly – remember it’s a combination of market reactions and unemployment that people will judge them.

 

What Mattered Last Week

Last week was again all about reporting season for local stocks as the ASX200 rallied to 6 year highs. 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 – Amcor (AMC) +8.7%, Ansell (ANN) +5.4%, Bank of Queensland (BOQ) +5.6%, Challenger (CGF) +4.2%, Crown (CWN) +4.5%, CSL +3.8%, M2 Group (MTU) +2.4%, Origin (ORG) +5.5%, Santos (STO) +5.3% and Wesfarmers +2.6%.
  • Negative Performance – BHP -3.2%, Coca-Cola (CCL) -4.2%, Fortescue (FMG) -2%, JBH Hi-Fi (JBH) -3.3% and Newcrest -1.4%.
  1.  I am holding ~11% in cash, with approximately equal weighting in Ansell (ANN), Commonwealth Bank (CBA), Challenger (CGF), Insurance Australia Group (IAG), M2 Group (MTU), & Seven West Media (SWM). Also note from my positions I am slightly net negative the overall index via XJO and Westpac options.
  2.  M2 Group reports next week, I will likely take profit on longs if we get a move towards $7.50.


What Matters this week

  • The ASX200 will open around 5635 on Monday after Friday’s mixed day overseas. I anticipate a pullback towards 5615 early next week led by the miners but for the ASX200 to remain bullish short term for me this area must hold.
  • 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) can be raised to $19.20, Challenger (CGF) under $7.40, Insurance Australia (IAG) under $6.30, M2 Group (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 Flight Centre (FLT) around $41- 42 with stops initially under $38.
  3. Unfortunately we missed Bank of Queensland for now.

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), Dax (w), Dow (m), Fairfax (m), IBEX (w) & (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), FTSE (w), Gold (w), Hang Seng (w), REA (m), RIO (w), S&P (w), STOXX (w), SUN (w), TLS (m), Vocus (w), WOW (m) & WPL (m).

Bearish: CCL (m), 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 traded VERY well with all stocks outperforming the ASX200 which rallied +1.4%.

  1. Ansell (ANN) +5.4%
  2. Challenger (CGF) +4.2%
  3. Commonwealth Bank (CBA) -0.7% (ex-div) v shorts in Westpac +2.3%
  4. Insurance Australia Group (IAG) +2.7%
  5. M2 Group (MTU) +2.4%
  6. Seven West Media (SWM) +2.3%
  • I am long KDL as a “sleepers”.
  • Cash, around ~11%.


Australian ASX200

I remain mildly bullish on a longer term basis; I will aggressively buy the above mentioned 2 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 is underperforming as expected but the NASDAQ remains very strong. Technically, I still expect another decent pullback in the S&P after this test of 2000.

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 and in fact would rather be long at current levels.

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 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 - 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– Coca-Cola Amatil (CCL) Weekly


Chart 58– 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 which I believe is dangerous.

Chart 59 – Gold Monthly Chart

Chart 60 – Copper Weekly Chart

Chart 61 – 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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