Market Matters Report / The Hickman Report Saturday 2nd August 2014

By Market Matters 02 August 14

The Hickman Report Saturday 2nd August 2014

The Hickman Report - Saturday 2nd August 2014. 

Market Matters Summary for Saturday 2nd August 2014

  • The ASX200 closed down 28 points (0.5%) last week, dragged by the heavyweight American and European markets where the Dow was down 468 points (2.8%) and the German DAX 434 points (4.5%)
  • I’m glad to say we have a beautiful uplifting day in Sydney today because last week was a tough one in the markets. After remaining negative for a frustrating few months I bought some CBA for a +7% fully franked return over 13 months only to see the Dow fall almost 450 points in 48 hours, not great timing although I can live with 1% stock move on a 13 month position.
  • My prediction of a +10% correction for the Russell 2000 (US small caps) and German DAX indices continue to unfold exactly as anticipated BUT notably they have already fallen 8.2 and 8.4% respectively. The Canadian and Asian markets continue to outperform, I can see a 4-5% correction in Canada but a worse case 10% in the Dow.
  • Fundamentally I maintain a medium term concern around rising interest rates in the US, driven by wages growth that will turn off the “free money tap”. This will likely cause a correction prior to the improving economy taking over the heavy lifting.
  • The Investment Cycle illustration below shows we approaching the end of Phase 3, this usually coincides with Central Banks commencing renormalization of policy, sound familiar? Buying the next pullback should typically be very profitable.
  • However, there are no similar risks to wages in Australia hence I am now expecting the ASX200 will continue this rare period of outperformance. Further significant weakness in the US I believe should create great buying locally.
  • With US margin debt at US$465 billion, close to the all-time highs of the crazy dotcom boom in 2007, we are close to a healthy correction but I believe not the end of the bull market. However, the Fear and Greed Index is at “Extreme Fear” - a buy signal.
  • The local market has been tough for many months but individual stocks continue to have significant movements, both up and down, so focusing on individual situations remains the smartest path at present. With weakening overseas markets and a number of companies reporting over coming weeks we are almost guaranteed some excellent opportunities ahead. 
  • My favourite new stocks currently to buy into weakness are: Bank of Queensland (BOQ), Macquarie Bank (MQG), Seek (SEK), Resmed (RMD), Flight Centre (FLT) and Fairfax (FXJ).



What Mattered Last Week

Last week was all about volatility as the ASX200 roared to 6 year highs towed along by CBA prior to giving up all the week’s gains on Friday as the Dow gave all its years gains back in one painful day.

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

  • Positive Performance – Commonwealth Bank (CBA) +1%, Flight Centre (FLT) +0.4%, Fortescue (FMG) +2.2%, James Hardie (JHX) +2.1%, Myer (MYR) +4.9% and Woolworths (WOW) +1.3%.
  • Negative Performance – Bank of Queensland (BOQ) -1.3%, Challenger (CGF) -1.6%, CSL -2.2%, QBE -8%, Resmed (RMD) -2.8% and Woodside (WPL) -4%.
  1. I am holding ~10% in cash, with equal weighting in Ansell (ANN), Commonwealth Bank (CBA), Challenger (CGF), M2 Group (MTU), & Seven West Media (SWM). Also note from my positions I am net negative the overall index via XJO and Westpac options.
  2. A few stocks continue to “twitch” my radar for buying/ accumulation into weakness.
  3. QBE was hammered after yet another downgrade, any panic under $10 I would consider a buying opportunity but with margins trending the wrong way it’s too early to chase.

What Matters this week

  • Technically I the ASX200 will open around 5525 support on Monday after Fridays 70 point fall by the Dow. Overall I now believe the ASX200 will retrace back towards 5350, approx. 3% lower. However, after Fridays savage sell off I would expect a short term bounce soon.
  • Please note most trading and investing opportunities happen in less than 5% of the time, i.e. 3 weeks of the year, and one of these timeframes may be approaching fast.
  • 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) remain under $18.50, Challenger (CGF) under $7.40, M2 Communications (MTU) remains below $5.70 & Seven West Media (SWM) under $1.84.
  • I can buy Seek (SEK) around $15.50 with stops under $13.50.
  • I can buy Bank of Queensland (BOQ) around $11.30 with stops under $10.50.
  • I can buy Fairfax (FXJ) under 85c with stops under 67c.
  • I can buy Flight Centre (FLT) around $41- 42 with stops initially under $38.
  • I can buy Resmed (RMD) around $4.40 with stops under $4.
  • I can buy Macquarie Bank (MQG) around $54.

Potential Trading for the coming week

  • After last week’s strong fall I will be looking for “abc” style bounces to sell, ideally around 5575. 

 

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 any weakness:

  • AWC, CSE, CSS, DCC, FXJ, KCN, KDL, LEI, & PEN. – I own the ones underlined, having bought DCC recently.

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), OZL (m), RMD (w), SEK (m), S&P (m), SWM (m) & Vocus (w).

Neutral: AMP (w), ASX200 (d), Australian Banks (w), CWN (m), FTSE (w), Gold (w), Hang Seng (w), IBEX (w), REA (m), RIO (w), S&P (w), STOXX (w), SUN (w), TLS (m), WOW (m) & WPL (m).

Bearish: BOQ (d), BHP (m), China (m), Copper (m), Dax (w), 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.

Australian ASX200

I remain mildly bullish on a longer term basis, I will aggressively buy any decent 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 reached my sell levels in early March, the NASDAQ then proceeded to fall 8.7%. I now expect another 8-10% fall from the 3990 region that should commence soon, the Russell 2000 reached fresh 2014 highs as expected and has been falling for a few weeks already.

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 now looks bearish and similar to the Russell 2000 / NASDAQ, with failure into current fresh highs unfolding targeting the 8800 area.

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 positive, led by the Hang Seng. The Nikkei continues to be volatile and is now threatening a decent correction.
The China Index remains bearish long term with another +18% 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. There are small signs of this emerging at present from the US but local financial stocks remain strong and the Reserve Bank recently confirmed lower domestic interest rates are here for a while.

Chart 23 – BHP Weekly Chart

Chart 24 – BHP Daily 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– Australian Dollar (AUD) Weekly Chart

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


Commodities

Gold remains volatile moving me to 50-50 scenario that it may abc up towards 1400 or fall towards 1100.

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.

Chart 58 – Gold Monthly Chart

Chart 59 – Copper Weekly Chart

Chart 60 – 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

Reports and other documents published on this email (‘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 ANN, CBA, CGF, DCC, KDL, MTU, SWM and WBC.