Market Matters Report / The Hickman Report Saturday 26 April 2014

By Market Matters 26 April 14

The Hickman Report Saturday 26 April 2014

The Hickman Report Saturday 26 April 2014

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Market Matters Summary for Saturday 26th April 2014

  • The ASX200 gained 1.4% last week, led by the banks, while the US Indices were unchanged after falls on Friday. 
  • The Australian banks have come to the party in April as expected, rallying 3.4% over the last 5 days – I sold my ANZ shares last week & although I feel a little naked being out I do anticipate a 15-20% correction in banks.
  • I reiterate I’m looking for a high in equities relatively soon, 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%.
  • Russia may be the catalyst for my anticipated pull back or something unforeseen like the recent “value selloff”.
  • “Three of the Four” big banks report soon. The banks may remain strong into these reports and potentially the dividends as profits are revised up, BUT that may be the last opportunity to sell, as I believe the market will start to focus on rising bond yields.
  • Last week saw the second interest rate rise in New Zealand and also rises in struggling Russia and Colombia.
  • These rises have little to do with Australia yet but the world is raising rates, not cutting and the US will affect us.
  • Unfortunately in Australia the RBA & Government have issues rebalancing the budget & a painfully strong $A.
  • I was happy to buy the recent correction via Seek, BUT I will be far more selective when it becomes a yield correction as I believe it will be ugly, my estimate remains a 15-20% correction for the banks.
  • Banks are 50% of a typical Australian private client portfolio Investor and they are too complacent over yield & this is never a successful mindset.
  • With interest rates rising, I believe investors MUST prepare to diverse out of banks or suffer underperformance.
  • Suncorp is now my preferred vehicle for dividends paying more than banks and benefiting $$ from higher rates.
  • Tops are extremely hard to pick as markets like to go up so often take a few attempts to fail. I am a seller now of any strength over coming weeks.

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What Mattered Last Week

Last week was dominated by perceived safety and yield stocks with all-time highs from ANZ Bank, Westpac and Woolworths.

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

  • Positive Performance from – Australian Banks +3.4%, Resmed (RMD) +8.4%, Seek +6.5%, Suncorp (SUN) +2.8%, Woodside (WPL) +4.5%, Woolworths (WOW) +4.9%.
  • Negative Performance from - Iuka -9.8%, JBH Hifi -2%, QBE -0.6%, RIO -0.6%.
  1. Last week I took profit on my long ANZ position.
  2. As anticipated a number of stocks squeezed up into option expiry during a 3 day week of low volumes.
  3. It remains hard predicting the ASX200 recently and hence, I am also focusing more on individual equities and overseas equities.


What Matters this week

  • 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 do expect a classic “sell in May and go away” correction to unfold shortly, likely led by the banks.
  • Overall I believe the current 5 year bull market is maturing fast and hence retracements will become deeper giving opportunities.
  • 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 reached last week.
  • Often being part in cash awaiting these corrections to be proactive I believe is the way ahead for the next few years.

 

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Trading for the coming week

  • Long Seek (SEK) around $16 with stops now under $16.90.
  • Sell Crown holdings around $16.50. I am a buyer around $15.50.
  • Buy Fairfax under 90c with stops under 84c and a target over $1.50.
  • Sell Magellan (MFG) on bounces towards $13 with a target of $10.
  • In general, take profit on bank positions into any further strength
  • Overall I am negative equities in general into any strength / fresh 2014 highs.

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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), CWN (m), Dow (m), Fairfax (m), FTSE (w), IBEX (m), JBH (w), NASDAQ (m), Nikkei (m), REA (w), RMD (w), SEK (m), S&P (m), SUN (m), Vocus (w) & WPL (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (d) & (m), BEN (m), BHP (w), BOQ (w), Hang Seng (w), FMG (w), IBEX (w), NZ (w), QBE (m), Retail Index (w), RIO (w), S&P (w) STOXX (w), WES (w) & WOW (m).

Bearish: Banks (w), BHP (m), China (m), Copper (m), Gold (w), MFG (w), & NCM (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 am mildly bullish on a monthly 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%. Ideally we will now see a rally to fresh 2014 highs prior to a deeper correction but we are monitoring this daily as tops are hard to pick and trade.

The NASDAQ and DAX are the clearest indices and both remain bullish longer term, I still remain positive the NASDAQ, ideally targeting 3,800 area into May prior to a +10% correction, but the “easy money” has gone.

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 an assault on the 7,000 level. The Dax looks very bullish and similar to the NASDAQ, the recent 881 point retracement may over and an assault on fresh highs for 2014 are close at hand.

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 has resulted in me now recommending a more balanced portfolio after being heavily weighted to the banks – my view is that the next major move in rates is up (NZ twice recently), which will lead to an eventual underperformance from bank stocksthere is clearly no sign of this at present.

  • I am recommending switching at least one bank holding to SUN, or after May dividends.
  • Plus, NAB is likely to be my preferred bank 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) daily Chart


Chart 35 – Bendigo Bank (BEN) Monthly Chart

 

Chart 36 – Bank of Queensland (BOQ) Weekly Chart

 

Chart 37 – AMP Weekly Chart

 

Chart 38 – Suncorp Group (SUN) Weekly 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) Monthly Chart

 

Chart 45 – Real Estate Australia Group Ltd (REA) Monthly Chart

 

Chart 46 – Vocus Communications (VOC) Weekly Chart

 

Chart 47 – Crown Resorts Ltd (CWN) Monthly Chart

 

Chart 47– Ansell Ltd (ANN) Monthly Chart

 

Chart 48– CSL Ltd (CSL) Monthly Chart

 

Chart 49– Resmed (RMD) Weekly Chart

 

Chart 50 Fairfax Media FXJ Monthly Chart


Chart 51– 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 52 – Gold Monthly Chart


Chart 53 – 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

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