Market Matters Report / The Hickman Report - Saturday 24th May 2014

By Market Matters 24 May 14

The Hickman Report - Saturday 24th May 2014

The Hickman Report - Saturday 24th May 2014

______________________________

Market Matters Summary for Saturday 24th May 2014

  • The ASX200 only rallied 13 points last week, but it felt MUCH more after rallying 120 points from a Wednesday morning low. The heavy lifting was done by the high yielding banks & Telstra. The Dow rallied 63 points.
  • In Thursday’s am report we highlighted that I had switched my 50-50 short term view on the US Indices to a preference for fresh highs prior to a +10% correction. This advance has basically been achieved, I can see another 2-3% from the NASDAQ prior to meaningful correction (+10%).
  • The ASX200 after a very strong end to the week looks likely to test 5575-5600 area prior a significant pullback.
  • A correction appears more likely to be caused by struggling economies rather than rising interest rates. This explains why Newcrest Mining (NCM) and QBE Insurance remain very bearish.
  • The comparative strength in US large companies v small caps is a bearish indicator. The last time that the S&P 500 index significantly outperformed the Russell 2000 (small caps) index was mid-2011. This same period was when the S&P 500 index lost approximately 21% in value from top to bottom.
  • The divergence in the Australian market is similar with CBA at times almost holding us together on its own.
  • We remain in a historically dangerous period, in 2013 the Dow fell -6.4% from the 22nd May & the ASX200 -11.8% from 15th of May, aggressively led by the banks who mostly topped in the 1st week of May – markets often repeat. The ASX200 has fallen 4 out of the last 4 Mays for an average decline of 4.33%.
  • Tops are extremely hard to pick as markets like to go up and they often take a few attempts to fail. I am comfortably 54% in cash looking to buy a correction, note I am still net bullish for the next year or two yet.
  • However, my cash position may increase dramatically if we have a strong few days as Suncorp is approaching my profit target area rapidly having rallied 4.7% so far this May.

______________________________ 


What Mattered Last Week

Last week was a whippy emotional rollercoaster ride for equities. From Monday all the momentum was down as the ASX200 fell sharply 100 points, then from midday Wednesday the market turned sharply rallying 135 points into Friday morning. Again, CBA hit all-time highs as investors seem only to be happy at “the big end of town” at present. This volatility and strength divergence I believe is a negative indicator for the approaching few months. Markets usually give investors warnings of problems ahead :

  • The ASX200 plunged 15% in July 2007, then made all-time highs in November prior to falling 55% in the GFC.
  • From January 2010 the market fell 9.9% quickly only to make fresh recent highs in April prior to plunging 16.9%.
  • In February 2011 the market fell 9.4% in a few weeks, then made a fresh recent high in mid-April prior to plunging 24%.

On the performance front, the below stocks caught my eye over the last 5 trading days:

  • Positive Performance – Alumina (AWC) +9.6%, ANZ Bank +2%, Ansell (ANN) +3.8%, Challenger (CGF) +4.6%, Crown (CWN) +2.5% & Treasury Wines (TWE) +26.7%.
  • Negative Performance - Fortescue (FMG) -1.5%, JBH Hifi (JBH) -8.2% & Seek (SEK) -3.3%.
  1. I am holding approx. 54% cash, with Suncorp my core long stock approaching profit target area of $14+ and recently purchased ½ position in M2 Group (MTU). If I am wrong and we have no correction, I simply make a small amount of interest and can relax and look to reinvest in coming months. 
  2. Be patient, it can be a frustrating to wait, I remain confident a decent retracement is coming, BUT it may take weeks / months to unfold especially as overseas indices remain short term constructive.


What Matters this week

  • No major change after a whippy week, I am looking for a decent correction in equities but they probably edge higher first.
  • I remain bullish going forward for the next year, or two, and am not scared by the increasing number of “Doomsday Merchants” getting published at present. However, I still expect a classic “sell in May and go away” correction to unfold shortly.
  • Overall I believe the current 5 year bull market is maturing fast and hence retracements will become deeper creating buying opportunities. I am looking for at least two decent corrections in the next 6-12 months, with one of them likely to be over 10%.
  • My estimate where the overall market gives great value is around 5050, the lows of 2014, and I see the market as currently overvalued above 5500 where it basically is now, especially with a strong $A and weakening Iron Ore price.
  • For me now sitting in a large % cash holding comes down to patience and constant evaluation of opportunities.

 

______________________________ 

Potential Trading for the coming week

  • Take profit on Suncorp over $14, especially if ASX200 is close to 5600 and the NASDAQ 3800.
  • Traders should be looking for selling / shorting opportunities at the above levels.
  • I am buyer of Seek (SEK) between $15-15.50 with stops under $13.50.
  • I remain a buyer of Fairfax under 90c.
  • Overall I am negative equities over the coming 4-8 weeks. The small / large cap divergence is negative as are seasonal factors.
  • I will start to look for buying opportunities if equities correct.
  • Watch for specific ideas in am reports and Alerts.

 ______________________________ 


A list of some sleepers are below, some have already started to show signs of life, we will look to continually add to this list over coming months:

  • AWC, CSS, FXJ, KCN, KDL, LEI, OZL & 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), CBA (m), CSL (m), Dow (m), Fairfax (m), IBEX (m), MTU (m), NASDAQ (m), Nikkei (m), RMD (w), SEK (m), S&P (m), SUN (m), & WPL (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (d) & (m), BEN (m), BHP (w), CWN (m), FMG (w), FTSE (w), Hang Seng (w), IBEX (w), JBH (w), NASDAQ (w), NZ (m), REA (m), Retail Index (w), RIO (w), S&P (w) STOXX (w), TLS (m), Vocus (w), WES (w) & WOW (m).

Bearish: Banks (w), BOQ (w), BHP (m), China (m), Copper (m), Dax (w), Gold (w), Magellan (MFG) (w), NCM (m) & QBE (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.


Australian ASX200

I am mildly bullish on a longer term basis but I anticipate a decent correction from May – July.

Chart 1 – ASX200 Monthly Chart 

Chart 2 – ASX200 Weekly Chart 

Chart 3 – ASX200 Weekly Chart 

Chart 4 – ASX200 Daily Chart 

Chart 5 – SPI (Share Price Index) Futures 60 mins Chart 

Chart 6 – Volatility Index VIX Weekly Chart

Chart 7 – ASX200 v NZX50 Index Monthly Chart

Chart 8 – New Zealand 50 Index Monthly Chart

 

American Equities

The American indices reached my sell levels in early March and since then the NASDAQ has fallen 8.7%. I now expect a rally to fresh 2014 highs prior to a +10% correction, ideally the NASDAQ will fail between 3750 and 3800.

Chart 9 – Dow Jones Index Monthly Chart 

Chart 10 – Dow Jones Index Daily Chart 

Chart 11 – S&P 500 Monthly Chart 

Chart 12 – S&P 500 Weekly Chart 

Chart 13 – NASDAQ Monthly Chart 

Chart 14 – NASDAQ Weekly Chart

 

European Indices

The European indices still look net bullish for 2014, with the FTSE in a classic 3-4 consolidation prior to a potential assault on the 7,000 level. The DAX looks very vulnerable and similar to the NASDAQ, with failure into fresh highs my expectation.

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 net positive, but messy short term. The Nikkei continues to be volatile and is now threatening a decent correction.
The China Index remains bearish long term with another +17% downside.

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 resulted in me now recommending a more balanced portfolio – there is clearly no sign of this at present. Actually it looks like yields may fall prior to rising, BUT this is the last “piece of the pie” and I have no interest chasing yield now.

  • NAB and Bank of Queensland are likely to be my preferred banks at some stage in the coming year.

Chart 23 – BHP Weekly Chart 

Chart 24 – BHP Daily Chart 

Chart 25 – Woodside (WPL) Monthly Chart 

Chart 26 – RIO Weekly Chart 

Chart 27 – FMG Weekly Chart 

Chart 28 – Vale (US) Weekly Chart 

Chart 29 – Newcrest Mining (NCM) Monthly Chart 

Chart 30 – JB Hifi (JBH) Weekly Chart 

Chart 31 – CBA Monthly 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 – Suncorp Group (SUN) Monthly Chart 

Chart 39 – Insurance Australia (IAG) Monthly Chart 

Chart 40 – QBE Insurance Monthly Chart

Chart 41 – Magellan Group (MFG) Weekly 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– Resmed (RMD) Weekly Chart 

Chart 53 Fairfax Media (FXJ) Monthly Chart 

Chart 54– Australian Dollar (AUD) Weekly Chart

The $A is looking choppy and is currently having a good bounce, with the potential to challenge the 97c area.


Commodities

Gold looks to have completed a strong rally towards the 1,400 area. Next stop 1,100?

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.

Chart 55 – Gold Monthly Chart

Chart 56 – Copper 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

Reports and other documents published on this email & website (‘Reports’) are authored by Market Matters independently of Shaw Stockbroking Limited (‘Shaw’). The Reports represent the views of Market Matters and those views may be contrary to views expressed by Shaw, Shaw Research and Shaw advisers. The Hickman Report is based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.
The Reports contain general, as opposed to personal, advice. That means they are prepared for multiple distribution without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of
a financial advisor.
The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports.
If you rely on a Report, you do so at your own risk. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.
The author holds an interest in the financial products of ANZ, AWC, CBA, KDL, MTU, & SUN.