Market Matters Report / The Hickman Report - Saturday 4th January 2013

By Market Matters 04 January 14

The Hickman Report - Saturday 4th January 2013

Welcome to 2014 and Gold is starting to shine

Market Matters Summary for 4th January 2014

  • US equities were firm on Friday after Ben Bernanke’s rhetoric of an improving US economy.
  • The relative weakness of the Australian economy is reflected by the $A which appears comfortable under 90c.
  • The stocks I am looking to buy into 2014 have a clear bias for offshore earnings BUT ideally at lower levels.
  • I remain bullish for 2014, especially the US, but do still believe that some decent corrections are close at hand.
  • Subsequently, investors should have a shopping list of stocks ready to buy if the ASX200 corrects.
  • I will be watching ANN, BOQ, CWN, CSL, FOX, FMG, MFG, QBE, REA, RMD and SEK to buy at lower levels as outlined beneath – virtually all of them benefit from offshore earnings.
  • Gold stocks are showing excellent signs of a bottom; I am comfortable buying NCM and RRL here.

 

The Overall Market

  • From mid-December, the ASX200 had low volume, explosive Christmas rally of 355 points (7.1%).
  • The catalyst was clearly the FOMC’s announcement of a gradual commencement to taper stimulus.
  • The US market's forecasted 8% correction has clearly not yet eventuated, but I remain comfortable holding 40% in cash.
  • I stress if we get this retracement, it’s an excellent buying opportunity for 2014 and not time to panic sell.
  • My work on correlations with clearer indices (e.g. NZ50 on chart 8) has the 4,800 level for the ASX200 flashing in big lights at some stage in 2014.


What Mattered Last Week

Last week was very quiet with most market players on Christmas break, the ASX200 managed to close +26 points while the Dow was -8 points. A few points of note:

  • The Christmas rally should be complete next week.
  • Statistically the first week of trading in the US gives a great indication for the coming year.
  • Gold stocks again were very strong last week with NCM +11.4% and RRL +6.1% - I remain bullish Gold stocks.


What Matters This Week

  • The ASX200 is again, likely to be dictated by low volumes as most traders / brokers make plans for 2014.
  • After clearly witnessing a strong “Christmas rally,” we need to consult the statistics of what usually comes next:
  1. The Santa Claus rally ends on January 3rd.
  2. February is usually a small negative month for the S&P since 1950.
  • I will continue to watch/buy gold stocks carefully as I am bullish at these levels and they are generating excellent buy signals – BUY NCM and RRL.


Trading for the coming Week

  • I am overall bullish for 2014, but a decent correction is overdue in a number of markets.
  • Short term traders can sell calls into strength as a retracement/consolidation to the recent 355 point rally is likely minimum.
  • Markets that are evolving relatively clearly, target the following retracements e.g. NASDAQ 225 points & NZ-10%.
  • Remember, it’s easy to identify a good company e.g. CBA, but not a good level to enter! Good investing requires both.
  • While I am bullish after such a strong 2013, I envisage a number of retracements in 2014 to enable good entry levels.
  • With rising interest rates in the US and not far away locally, I believe banks will underperform in 2014.
  • I believe patience will be vital in 2014 as this bull market slowly matures.
  • The gold sector had an awful 2013; gold stocks look as unloved as the retail sector was in June 2012 prior to the 65% rally. I have been buying slowly while everybody has been selling, looking for a strong corrective rally minimum.
  • I am recommending buying long dated NCM calls for trading / option investors and / or NCM / RRL stock.
  • Investors should maintain a set plan for a correction if it unfolds. I have increased cash holdings and will simply buy my preferred equities into weakness. I have again refined these below:
  1. ANN - $19.
  2. CWN -$15. 
  3. FOX - $31
  4. BOQ - $11
  5. FMG - $5
  6. MFG – under $10
  7. REA - $35
  8. RMD - $4.50
  9. CSL - $60
  10. QBE - $10.75
  11. SEK - $11.50

N.B. I am remaining patient on entry price levels as a lot of people are choosing these stocks with offshore earnings exposure for 2014, hence retracements can feed on themselves.

Market Matters’ View

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

Bullish: ANN(m), BOQ (m), CBA (m), CSL (m), CWN (m), Dow (m), FOX (m), FMG (w), FTSE (w), IBEX (m), NASDAQ (m), NCM (w), Nikkei (m), REA (m), RRL(m), SEK (m), S&P (m), SUN (m), & WOW (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (w), BEN (m), BHP (d) & (w), Hang Seng (w), Gold (m), NAB (w), NCM (m), QBE (m), RIO (w), STOXX (w) & WES (w).

Bearish: China (m), Copper (m), NZ (w), Retail Index (w), WBC (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, but neutral on a daily basis. The path of least resistance was clearly up over the Christmas period as is so often the case, what comes next is now tricky. By mid-January a clearer picture should emerge.
I remain wary of the potential 8% correction for overseas markets and the weekly “rising wedge triple top” formation on chart 3 and the close correlation with clearly negative NZ market.


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 – New Zealand 50 Index Monthly Chart


Chart 8 – ASX200 v New Zealand 50 Index Monthly Chart


 

American Equities

 

The American indices look vulnerable to an 8% correction, the Dow has reached my target areas. However, weakness in the US should be aggressively bought as the monthly set ups and growing economies are overall bullish.
The NASDAQ is the clearest index and the most bullish, I am an aggressive buyer of any 200+ point correction.

 


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 – Russell 3000 Index Weekly Chart


Chart 14 – NASDAQ Monthly Chart


European Indices

The European indices now look net bullish for 2014 with the FTSE in a classic 3-4 consolidation prior to an assault on the 7000 level. Short term the Euro Stoxx looks set to test December lows.


Chart 15 – Euro Stoxx 50 Weekly Chart


Chart 16 – FTSE Weekly Chart


Chart 17 – Spanish IBEX 35 Monthly Chart


Chart 18 – Spanish IBEX 35 Weekly Chart


 

Asian Indices

Asian indices remain net positive, but messy short term. The Nikkei continues to trade out of control, under the weight of stimulus and intervention. The China Index remains bearish and the Hang Seng is struggling after poor economic data from the mainland.

 


Chart 19 – Hang Seng Weekly Chart


Chart 20 – China Shanghai Composite Monthly Chart


Chart 21 – 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 – my view is that the next major move in rates is up, which will lead to an underperformance from bank stocks. Overall, the major stock’s in the ASX200 remain clearly positive however, I have reduced exposure into recent strength, positioning myself for a potential pullback to buy back in – a number of stocks were frustratingly close prior to the Christmas rally. At this stage, I am going to apply some patience rather than jumping in at current levels.

I am a little concerned that everybody is calling stocks with exposure to overseas earnings to outperform...how crowded is this trade? Hence being fussy on price makes a lot of sense.

Stock picking remains at a premium as is demonstrated in 2013 with different stocks moving in different directions e.g. FOX +78% and SEK +89% but WOR -28% and NCM -64%.

 

  • Performance, good or bad, in 2013 is no guarantee for 2014!!

 


Chart 22 – BHP Weekly Chart

 


Chart 23 – BHP Daily Chart


Chart 24 – Woodside (WPL) Monthly Chart


Chart 25 – RIO Weekly Chart


Chart 26 – FMG Weekly Chart


Chart 27 – Vale (US) Weekly Chart


Chart 28 – Newcrest Mining (NCM) Monthly Chart


Chart 29 – Regis Resources (RRL) Weekly Chart


Chart 30 – Australian Retail Index Monthly Chart


Chart 31 – CBA Monthly Chart


Chart 32 – ANZ Monthly Chart


Chart 33 – WBC Weekly Chart


Chart 34 – NAB Weekly 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 – Crown Resorts Ltd (CWN) Monthly Chart


Chart 47– Twenty-First Century Fox Ltd (FOX) Monthly Chart


Chart 48– Ansell Ltd (ANN) Monthly Chart


Chart 49– CSL Ltd (CSL) Monthly Chart


Chart 50– Resmed (RMD) Weekly Chart


Chart 51– Australian Dollar (AUD) Weekly Chart

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; clearly benefiting stocks with offshore earnings.


Commodities

On a monthly basis, gold remains 50-50 however, a strong rally towards the 1,400 area is likely in 2014. The question remains as to whether we spike under 1180 lows first.

The amount of money tied up in gold ETF’s that did not exist pre 2004 remains a negative. However, 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.

 


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