Market Matters Report / The Hickman Report - Saturday 9th August 2014

By Market Matters 09 August 14

The Hickman Report - Saturday 9th August 2014

The Hickman Report - Saturday 9th August 2014

Market Matters Summary for Saturday 9th August 2014

  • The ASX200 closed down 128 points (2.3%) last week where volatility ruled with the US Dow up 117 points (0.7%) and the German DAX down 201 points (2.2%). Geopolitical risk dominated with both Ukraine and Iraq, hitting the news wires and arguably the more important issue, interest rates taking a back seat.
  • I look carefully at International markets, as Global markets are generally interconnected with investment capital simply flowing from one perceived expensive market to a cheaper one. Fundamentally, Australian and the US equity markets are slightly expensive but a further 200 points fall on the ASX200 would represent an excellent historical buying opportunity.
  • My prediction of a +10% corrections for the Russell 2000 (US small caps) and German DAX indices have unfolded exactly as anticipated, BUT notably they are now very close to my targets – hence how much further do they fall? Other Indices fall?
  • 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”. The markets’ anticipation of this is already raising its head with concerns over bank valuations – this year the banks (1/3 of the local Index) have underperformed the Index by 2.5x compared to last year outperforming by 2x.
  • I have been very concerned on banks for weeks now only owning CBA against a short Westpac position. Interestingly now the banks have had decent retracements a number of media commentators are starting to follow us and discuss their vulnerability, this makes me feel more comfortable buying the current pullback in BOQ. Pullbacks to-date: BOQ 10.6%, ANZ 8.1%, CBA 4.7%, NAB 8.8% and Westpac 8.4%.
  • As I discussed at length recently, buying the current pullback should typically be very profitable on a cyclical basis. However, investors must recognize the changing circumstances and simply chasing traditional yield sources will likely lead to an underperformance. 
  • Current volatility looks likely to create some excellent opportunities ahead. 
  • My favourite 6 stocks that I will buy into further weakness are: Bank of Queensland (BOQ), CSL Ltd (CSL), Macquarie Bank (MQG), Seek (SEK), Flight Centre (FLT) and Fairfax (FXJ) – see below.


What Mattered Last Week

Last week was again all about volatility as the ASX200 fell to 5 week lows accelerating down on news of the US pending involvement in Iraq. Ironically, the US markets welcomed the news along with reduced tensions in Ukraine, sending the Dow up 186 points (1.1%) on Friday night.

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

Positive Performance – Cochlear (COH) +6.6%, Fairfax (FXJ) +2.9%, James Hardie (JHX) +3%, Newcrest Mining (NCM +3.5% and Resmed (RMD) +1.3%.

Negative Performance – Bank of Queensland (BOQ) -4.5%, Bank Index -3.6%, Challenger (CGF) -4%, Crown (CWN) -7.8%, IAG Insurance (IAG) -3.4%, Macquarie (MQG) -3.6% and Woolworths -2.2%.

  1. I am holding ~20% in cash, with approximately 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. The 6 stocks above are on my radar for buying/ accumulation into weakness. 
  3. Watch out for Monday’s Morning Report for the 3 stocks I can buy today.


What Matters this week

  • The ASX200 will open around 5475 on Monday after Friday’s strong rally by the Dow. Overall I still believe the ASX200 will retrace back towards 5350, approx. 1.5% lower. My view remains that the majority of the weakness will come from the banking sector which people are overweight hence pullbacks can be sharp, this already is the case from their respective recent highs as I have shown above.
  • CBA reports this Wednesday which will obviously have an enormous impact on our market and in particular the Banking Sector short term.
  • 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 I believe is 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 $5.90 & Seven West Media (SWM) under $1.84.
  1. I can buy Seek (SEK) around $15.50 with stops under $13.50.
  2. I can buy Bank of Queensland (BOQ) around $11.30 with stops under $10.50.
  3. I can buy Fairfax (FXJ) under 85c with stops under 67c.
  4. I can buy Flight Centre (FLT) around $41- 42 with stops initially under $38.
  5. I can buy CSL Ltd (CSL) around $56 with stops under $51.
  6. 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 5525 in the ASX200.

A list of some sleepers are below, a few have already started to show signs of life, we will look to continually add to this list over coming months:

  • AWC, CSE, CSS, DCC, FXJ, KCN, KDL, LEI, & 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), 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), BHP (m), CWN (m), Dax (w), 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), China (m), Copper (m), 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.

Portfolio Holding

Last week our portfolio held ok with MTU making up for CGF and SWM as the ASX200 fell 2.3%.

  1. Ansell (ANN) -1.1%.
  2. Challenger (CGF) -4%.
  3. Commonwealth Bank (CBA) -3.2% v shorts in Westpac (via options) -3%.
  4. M2 Group (MTU) +3.8%.
  5. Seven West Media (SWM) -3.3%.
  • I am long DCC & KDL as “sleepers”.
  • Cash, around ~20%.

Australian ASX200

I remain mildly bullish on a longer term basis; I will aggressively buy the above mentioned 6 stocks into any further 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 are not all moving together at present, the Russell 2000 has fallen as expected but the Dow and S&P remain resilient. I still expect another 8-10% fall in the NASDAQ from the 3990 region that should commence soon.

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 and IBEX have basically reached my target areas and I would no longer be short European Indices.

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 ABC style correction.
The China Index remains bearish long term with another +18% downside, however, short term I think the strength looks likely to continue.

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 the local economy is faltering so rates are likely to stay lower for longer.

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, I am 50-50 just here.


Commodities

Gold remains volatile moving me to a 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 comfortably.

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

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