Market Matters Report / The Hickman Report - Saturday 30th November 2013

By Market Matters 30 November 13

The Hickman Report - Saturday 30th November 2013

The roadmap for Australian equities is more clouded at present and littered with dangerous land mines

The Overall Market

  • This is one of the most exciting reports I have written in many months with a lot of signals pointing to fireworks looming.
  • If this volatility occurs, a clearly laid out plan generated when things are quiet (like a Saturday morning) are vital.
  • The longer term charts (monthly) in the US remain very bullish likely into 2016, however, we have probably witnessed the more aggressive part of the move with the potential exception of the NASDAQ – reflected in SEK and REA.
  • The Dow looks vulnerable to an 8% correction for excellent buying; the NASDAQ strength may aid S&P outperformance.
  • Please note this would only be back to November lows, hardly a major cause for concern.
  • I stress if we get this retracement, it’s an excellent buying opportunity and not time to panic sell.
  • This overall bullish view is very easy to comprehend with Janet Yellen taking over at the Fed saying that inflation is very much a second concern to improving healthy employment.
  • Plus the US GDP figures look solid for a few years to come and rate hikes unlikely until 2016 (seven years of zero rates).
  • However, US margin loans are now at record all-time highs which makes a retracement easy to comprehend, interestingly in Australia it is +70% under its 2007 peaks.
  • Australia has to a degree adopted CFD’s, which are illegal in the US, but still leverage to equities is clearly significantly reduced. I will personally “gear up” with option “gut spreads” (zero interest loan) if we get the significant correction.
  • The roadmap for Australian equities is more clouded at present and littered with dangerous land mines (e.g. FGE, GNC, NCM, OZL, PNA, UGL & WOR).
  • Global valuations consider Australia fairly valued in a global context, with the US market still looking attractive on an earnings growth basis and Europe on valuations.
  • Basically Australia is the odd one out of the developed markets, exhibiting weaker growth.
  • The weakening $A will keep overseas investors away short term, they focus on net purchase cost not better profitability.
  • How the investment world views Joe Hockey’s block of the bid for GNC only time will tell but it cannot be positive.


What Mattered Last Week

  • Last week was neutral, and generally quiet, for the ASX200 trading in a very small 67 point range. Focus was very stock specific last week unfortunately with another couple of shockers gaining the spotlight.
  • Forge fell over 80% on poor write-downs and forecasts, this stock is now a day trader’s vehicle, no more.
  • GrainCorp fell 24% after the Govt. takeover block. I have bought the gap down and will trade with close stops.
  • GNC was the 3rd largest takeover block in Australian history after Shell’s bid for WPL and SGX’s bid for the ASX.
  • The QAN pending decision will be interesting, the politics always continue.
  • The market is now already focusing on Shell selling down its stake in WPL – with WPL falling 1.97% on Friday. Technically I remain bearish WPL, a long term underperformer.
  • The banks rallied approx. 1.5% as traders focused on more rate cuts again but gold stocks again hit 10 year lows.
  • The shining light was SEK up 9%, maintaining the technology space as my favorite sector at present (see NASDAQ).

What Matters This Week

  • The ASX200 can be driven by strong seasonality and specific stock news.
  • Traders / investors should be aware that December is historically the number one month for the S&P 500.
  • The European Indices remain net positive on a weekly basis.
  • In mid-December shareholders will receive $8.6 billion in dividends, explaining why the ASX200 has rallied 85% of time from this period into January (some of this will be absorbed by the IPO’s).
  • I remain a seller of banks into any fresh highs for the ASX200, investors may need to consider options strategies depending on individual tax positions e.g. large capital gains on bank shares.
  • This selling opportunity could well be around 5500 for the ASX200, in early December / January.
  • However, I am not complacently bullish due to the technical picture evolving, targeting a decent correction soon.
  • A break of 5280 for the ASX200 will turn me medium term bearish.
  • If it was not for the seasonal factors I would be currently bearish, as it is I am Neutral and cautious.
  • The overlay of the ASX200 and NZ50 points clearly to an unfolding 8-10% correction (chart 8) – interestingly for November the ASX200 was -1.9%, NZ -2.3% but the S&P +2.8%.

Trading for the coming Week

  • Overall the ASX200 remains bullish, while over 5280, and I am 50-50 it will make new highs for 2013.
  • I will be confirmed bearish with a close of only 40 points lower for the ASX200.
  • Monday is going to be very interesting, the start of a new month should be positive historically. I will be bullish if the December SPI trades over 5350 and bearish under 5290 – good risk reward parameters.
  • I am looking to increase long exposure to QBE any buying close to $15 is good risk reward.
  • I am a buyer of FMG around $5.20 but this is unlikely to occur this week.
  • I am looking to increase holdings of OGC into gold sector weakness – copper is a slight concern here.
  • The gold sector has had an awful year; Gold stocks look as unloved as the retail sector was in June 2012 prior to a 65% rally. I am buying slowly now while everybody is selling looking for a corrective rally minimum, perhaps as equities correct.
  • In the medium term I am still looking for an 8% pullback in the US for an excellent buying opportunity, a break under 15,700 in the Dow would trigger signals that this move has commenced. The NZ correction looks to have started.
  • Investors should have plans for this potential eventuality if it occurs. I have increased cash holdings and will simply buy my preferred equities into weakness, see ideal areas below:
  • ANZ (sub$30), BOQ (11.70), CBA (sub $70), CWN ($15), FOX ($31), FMG ($5.20), QBE ($15.40) and REA ($35).

Market Matters’ View

The below views are illustrated in detail by the charts beneath.

Bullish: ASX200 (d), BEN (m), BOQ (m), CBA (m), CSL (m), Dow (m), FOX (m), FMG (w),FTSE (w), Hang Seng (w), IBEX (m), NASDAQ (m), Nikkei (m), OGC (m), QBE (m), REA (m), SEK (m), S&P (m), SUN (m), & WOW (m).

Neutral: AMP (w), Australian Banks (w), BHP (w), Gold (m), GNC (m), NCM (m), NZ (w), RIO (w), STOXX (w).

Bearish: China (m), Copper (m), Retail Index (w), WES (w) & WPL (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 remain bullish on a monthly basis, plus we are in a seasonal very bullish phase. Most people were too afraid to buy closer to 5000 because of media coverage surrounding the US debt default situation – now fear of missing out is emerging, and 5500 is quickly coming into view. Prior to November every retracement reached hungry buyers but this has definitely relaxed of late. The yearly range targets 5450+ (reached) and a simple monthly abc targets 5670. However, I am very wary of the potential 8% correction for overseas markets and the weekly “rising wedge triple top” formation on the weekly chart.


 

 

 

 

 

 

 

 

American Equities

The American indices look set to rally into December with the Dow targeting well over 16,000. However, next 8% move I believe is down with the possible exception of the NASDAQ.

 

 

 

 

 

 

 

 

European Indices

The European indices now look net bullish for 2013 with the Eurostoxx and IBEX both target fresh 2013 highs in December.

 

 

 

 

 

Asian Indices

Asian indices remain positive and finally started performing last week. The Nikkei has been trading out of control, under the weight of stimulus and intervention.



 

 

 

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 – my view is that the next move in rates is up. Overall the major stocks in the ASX200 remain clearly positive; however, I am reducing exposure into current strength positioning myself for a potential pullback.

Stock picking remains at a premium as is demonstrated in 2013 by BOQ outperforming in the Banks and FMG in the resources space.




























 

Australian Dollar

The $A is looking very heavy, the recent bounce was a little greater than anticipated breaking 97c, renewed weakness now looks likely with an ultimate target of 81-82c.




Commodities

The Gold chart looks bullish longer term targeting fresh recent highs, likely over $2,000 suggesting inflation - confirmation requires a close over 1480. On a monthly basis, gold remains bearish targeting new lows for 2013/14 under 1180. Seasonally this is a good period for gold.

Also, the amount of money tied up in Gold ETF’s that did not exist pre 2004 remains. Having recently visited China, the only two investments that interest locals are property and gold……not reflected by the price yet.

Copper remains negative on a longer term basis, a very similar chart pattern to Newcrest Mining and we all saw what happened there – PNA & OZL yet again had poor weeks.





 

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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