Market Matters Report / The Hickman Report - Saturday 24th January 2015

By Market Matters 24 January 15

The Hickman Report - Saturday 24th January 2015

The Hickman Report - Saturday 24th January 2015


Happy Australia Day!


We are in an extremely simple market at present and both investors and traders should not fight the current trend that may last well into 2016. Simply, interest rates are extremely low and historically, money has NEVER been so cheap, but commodity prices continue to decline and may easily have further to fall.


1. 10-year bond Interest rates are at all-time lows in Australia and official rates may start to fall again in 2015 – the $A falling under 79c may result in the RBA sitting on their hands for a few months, they unfortunately have a reputation of being slow to react compared to overseas counterparts.
2. Commodity prices continue to plunge with Crude Oil down over 50% in 8 months, Copper falling 21% in 3 months and Iron Ore down 53% in 13 months. With production increasing and demand falling as China normalizes, further falls are very easy to imagine.


I reiterate again that I have no interest in buying resource stocks as an investment for the foreseeable future; I believe the stocks are currently being valued around elevated commodity prices and this is a dangerous game, especially if prices decline further.


Alternatively, with Australia 10-year bond rates at 2.5%, our high yielding quality stocks are arguably cheap.


Last week we purchased Telstra (TLS) looking to benefit from 7.2% fully franked return over 13 months, extremely attractive compared to unfranked term deposits.


Amazingly, Banks now represent almost 40% of all company profits on the Australian market and hence an enormous influence on where the ASX200 is heading. With banks also offering solid fully franked returns, it’s hard at present to see a significant decline in local equities.


Commonwealth Bank (CBA) is paying approximately 6.96% fully franked dividend over the next 13 months. Clearly very attractive to local investors.


This current year should be fascinating, as the US is likely to commence raising interest rates (Fed Fund rate only 0.25% at present), but the yield of US 10-year bonds has declined to 1.8% from 3.1% in early 2014, implying professionals believe rates will stay “lower for longer”.


So what of my call for a correction in equities? I have not changed my mind on both degree of pullback and target area, but it appears likely that the free money trade reignited by the European Central Bank (ECB) last week is going to fuel a rally in equities higher short term:


1. European Indices – Look to have another 6-8% upside after the ECB decision last week.
2. US Indices – I’m 50-50 on all except the NASDAQ which remains bullish.
3. ASX200 – is positive while it holds over 5420.


This week the clear technical charts are again aligned with above comments:


Bullish: The ASX200 while over 5420, European Indices, WPL while over $32, CBA, WBC, NAB, RMD, SEK and Telstra.


Neutral: RIO, DOW and S&P500, Hang Seng, Nikkei, Newcrest (NCM), Regis (RRL), ANZ and MQG.


Bearish: Interest Rates, Copper, Crude Oil, Iron Ore, BHP – longer term, Fortescue (FMG) and WOW.


My conclusions:

• Telstra and Banks will continue perform well in coming months.

• Watch bond markets carefully for any move away from “cheap money”.
• I have no interest in the commodity space.
Equities are likely to rally further prior to a meaningful retracement and I currently would rather hold Telstra / CBA for February dividends than cash during this period.


What Matters this week


The ASX200 open on Tuesday (after Australia Day) will be determined by overseas markets on Monday night.


Potential Investing opportunities for the coming week


• For investors holding cash long term, remain patient it may take 3-4 months but I anticipate excellent buying opportunities in 2015.
• Short term I prefer TLS and CBA to cash for February dividends.


Potential Trading for the coming week


• I am a buyer of 40 point pullbacks in the ASX200 with stops under 5420 at present.


Portfolio Holdings


My portfolio increased last week with the purchase of Telstra. We underperformed slightly as the ASX200 rose 3.8%.


1. Bank of Queensland (BOQ) +3.3% - Medium term investment.
2. Commonwealth Bank (CBA) +3.2%- Long term investment.
3. Telstra Corporation (TLS) +1.9% - Medium term investment.


• Cash for future purchases, ~25%.


Australian ASX200

I intend to be patient with any further buying at present.

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 will ideally correct 10-15% over coming months, BUT I am 50-50 here.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Dow Jones Index Daily Chart

Chart 10 – S&P500 Monthly Chart

Chart 11 – S&P500 Weekly Chart

Chart 12 – Russell 2000 Index Monthly Chart

Chart 13 – NASDAQ Weekly Chart

Chart 14 – The Stock Market Cycles


European Indices

European Indices look set to rally another 6-8% on ECB stimulus.

Chart 15 – Euro Stoxx 50 Weekly Chart

Chart 16 – FTSE Weekly Chart

Chart 17 – Spanish IBEX Monthly Chart

Chart 18 – German DAX Monthly Chart

Chart 19 – German DAX Daily Chart


Asian Indices

Asian indices are neutral at present. However, China remains bullish as it opens its market to offshore investors.

Chart 20 – Hang Seng Weekly Chart

Chart 21 – China Shanghai Composite Monthly Chart

Chart 22 – Japanese Nikkei 225 Monthly Chart


Australian Stocks

Quality stocks with sustainable yield remain standouts.

Chart 23 – BHP (US) Monthly Chart

Chart 24 – BHP Daily Chart

Chart 25 – Woodside (WPL) Daily Chart

Chart 26 – RIO Tinto (RIO) Weekly Chart

Chart 27 – Fortescue Metals (FMG) Monthly Chart

Chart 28 – Vale (US) Weekly Chart

Chart 29 – Newcrest Mining (NCM) Monthly Chart

Chart 30 – Regis Resources (RRL) Weekly Chart

Chart 31 – Barrick Gold Corp. (US) Monthly Chart

Chart 32 – CBA Quarterly Chart

Chart 33 – ANZ Bank (ANZ) Monthly Chart

Chart 34 – Westpac Bank (WBC) Weekly Chart

Chart 35 – National Bank (NAB) Weekly Chart

Chart 36 – Macquarie Bank (MQG) Weekly Chart

Chart 37 – Bank of Queensland (BOQ) Weekly Chart

Chart 38 – AMP Weekly Chart

Chart 39 – Challenger Financial (CGF) Monthly Chart

Chart 40 – Suncorp Group (SUN) Monthly Chart

Chart 41 – Insurance Australia (IAG) Monthly Chart

Chart 42 – QBE Insurance Monthly Chart

Chart 43 – Wesfarmers Ltd (WES) Weekly Chart

Chart 44 – Woolworths Ltd (WOW) Quarterely Chart

Chart 45 – Seek Ltd (SEK) Weekly Chart

Chart 46 – Telstra (TLS) Monthly Chart

Chart 47– M2 Group Ltd (MTU) Monthly Chart

Chart 48 – Vocus Communications (VOC) Weekly Chart

Chart 49– Ansell Ltd (ANN) Monthly Chart

Chart 50– CSL Ltd (CSL) Monthly Chart

Chart 51 Ramsay Healthcare (RHC) Monthly Chart

Chart 52– Resmed (RMD) Weekly Chart

Chart 53 - Fairfax Media (FXJ) Monthly Chart

Chart 54 - Flight Centre (FLT) Monthly

Chart 55 – Coca-Cola Amatil (CCL) Weekly

Chart 56– Myer Holdings (MYR) Weekly

Chart 57– JB Hifi (JBH) Monthly

Chart 58– Harvey Norman (HVN) Monthly

Chart 59– Australian Dollar (AUD) Weekly Chart

The $A continues to decline with ultimate technical targets now well under 70c.


I remain bullish Gold targeting the $US1,400/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 but a bounce / consolidation is now due.

Iron Ore is showing signs of a bottom as downside momentum is falling, however I would not be buying Iron Ore exposed stocks.

Chart 60 – Gold Monthly Chart

Chart 61 – Gold (in $A) Quarterly Chart

Chart 62 – Copper Monthly Chart

Chart 63 – Crude Oil Monthly Chart

Chart 64 – Iron Ore 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


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The author holds an interest in the financial products of BOQ, CBA, KDL & TLS.