Market Matters Report / The Hickman Report - Saturday 31st January 2015

By Market Matters 31 January 15

The Hickman Report - Saturday 31st January 2015

The Hickman Report - Saturday 31st January 2015

Afternoon All,

Last week was extremely tricky for people that have not embraced the “new normal” with the DOW falling 2.9% and the ASX200 rallying 1.6%. Decent trends usually evolve over a long period, but cannot be ignored / fought when they turn. I believe that 2015 will see the Australia market outperform the US, if I am correct, anyone buying US market exposure I believe, would want to be holding the investment in $US.

Since 2009, the S&P500 is up 199% and the ASX200 is up only 68%, BUT since mid-December the ASX200 is up 9.3% while the S&P500 is down 4.7%.-see chart 1a.
• The rising $US will hinder the earnings of US companies and aid a lot of Australian corporations.

Unfortunately it would appear that my prediction of a 10-15% correction in the US may be correct, but this not giving us bargains in Australian stocks that I hoped and prior to Telstra purchase was aggressively positioned for.
Equities are being driven by the sheer weight of money chasing returns (yield / capital gain) and with the US about to commence raising interest rates and Australia expected to start cutting soon, plus Europe stimulating aggressively, the attention has moved away from the US. As I have been discussing recently, the below point is what’s driving equities at present:

• Australian 3-year bonds are yielding 1.91% and US 10-year bonds 1.64%, BUT Commonwealth Bank purchased today is likely to yield ~6.7% Fully Franked over the next 13 months.

The ASX200 is fully valued around 5,600 using common valuation models but compared to bonds it’s simply cheap. With banks the current large driver of Australian equities, let’s look at the seasonal factors and data for the Banks:

• Historically March and April are extremely kind to banks with the “45-day holding rule” having an effect – investors buy ANZ, NAB and WBC go ex-dividend in May, so people get set early.
• Over the last 16 years since the holding rule was introduced, the banks have been up an average 0.3% for February, 2.5% in March and 3.2% in April. Subsequently any weakness in early February should be good buying in the banks, even at these levels.

Recently we purchased Telstra (TLS) looking to benefit from 7.2% fully franked return over 13 months, and this position is already up 3.7%. On Friday, I purchased ½ positions size in NAB which I will likely add to in weakness.

So what of my call for a correction in equities? I have not changed my mind on both degree of pullback and target area for US equities but unless the ASX200 falls under 5480 I will be looking to buy weakness in the local market.

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

Bullish: The ASX200 while over 5480, European Indices, Chinese Index, Woodside (WPL) short term target $36+, FMG short term target $2.90, Banks, Seek (SEK) and short term Suncorp (SUN).

Neutral: RIO, Hang Seng, Nikkei, Newcrest (NCM), Regis (RRL).

Bearish: US equities, Interest Rates, Copper, Crude Oil, Iron Ore, and BHP – longer term and short term around $30 and Woolworths (WOW).

My conclusions:

• Telstra (TLS) and the 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 for investing but it will provide some good trading opportunities.

What Matters this week

The ASX200 is looking to open 20 points lower on Monday after the Dow fell 250 points on Friday night.


Potential Investing opportunities for the coming week

• I will be looking to buy banks into weakness, ideally around 5530 in the ASX200.
• Short term I prefer TLS and CBA to cash for February dividends and NAB for future dividends in May.

Potential Trading for the coming week

• I am a short term seller of the ASX200 targeting 5530 area prior to becoming a buyer.
• I am bearish BHP around $30, Woolworths targeting under $29 but bullish WPL and FMG for trading bounces – good pair’s trades for sophisticated investors.


Portfolio Holdings

My portfolio increased last week with the purchase of Telstra. We underperformed slightly as the ASX200 rose 1.6%.

1. Bank of Queensland (BOQ) +3.5% - Medium term investment.
2. Commonwealth Bank (CBA) +3.6% - Long term investment.
3. National Australia Bank (NAB) +2.5% - Medium term investment.
4. Telstra Corporation (TLS) +2.5% - Medium term investment.

• Cash for future purchases, ~20%.

Australian ASX200

I am looking to buy weakness in high yielding stocks, likely simply adding to banks.

Chart 1 – ASX200 Monthly Chart

Chart 1a – ASX200 v S&P500 Weekly 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 exactly how the ASX200 will react.

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) Weekly 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) Quarterly Chart

Chart 44b – Woolworths Ltd (WOW) Weekly 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 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 BOQ, CBA, KDL NAB, and TLS.