Market Matters Report / The Hickman Report - Saturday 9th May 2015

By Market Matters 09 May 15

The Hickman Report - Saturday 9th May 2015

The Hickman Report - Saturday 9th May 2015

Afternoon All,

Local equities had an extremely volatile, and disappointing, week as the “Big 4 Banks” proved the theory that all stocks can come back to reality with a thud if they disappoint the market. Last Tuesday we had an interest rate cut to 2%, the lowest in history, but the markets started reading this as the last cut and the next likely move a rise. The potential end of the rate cut cycle combined with poor results from Westpac and CBA, plus a $5.5bn capital raising, sent investors fleeing from our perceived safe banks e.g. CBA traded at $15.59 below its 2015 highs (16.1%).

  • Last week the ASX200 fell 3.1%, with the banks down 4.8% but the US Dow was up 0.9% and the German DAX +2.2%.

I have been predicting this great unwind of the “yield trade” for a number of weeks and it certainly happened with a bang. What matters now is what comes next and how we can benefit. I remain firmly of the belief that the US market will correct ~15% in 2015 but I note the short term picture for the coming 1-2 weeks remains positive. Last week I noted a few reasons I could easily envisage this correction in the US and I believe most people would have thought a 15% correction in the Dow was more likely than a 16% fall in CBA, or 17% from Westpac.

  • Hopefully last week’s collapse in our “Big Four Banks” has reopened people’s eyes to what markets can do.

If I am correct that the US is poised for a 15% correction, then my best “guess” is the ASX200 will pull back to the 5200 region ~8% lower. Overall I believe the yield support will kick in for the banks in coming months and hence we may now outperform the US if it corrects as I expect. The current position of the banks that I am currently watching in simple terms:

1. ANZ $32.35 – but the price target at its long term PE is $30.97 – 4.3% expensive.

2. BOQ $13.07 – but the price target at its long term PE is $13.65 = cheap now!

3. CBA $82.64 – but the price target at its long term PE is $71.44 – 13.6% expensive.

4. NAB $35.20 – but the price target at its long term PE is $31.35- may be interesting after capital raising.

5. WBC $34.05 – but the price target at its long term PE is $29.89 – 12.2% expensive.

  • I believe the time is approaching for some patient shopping.


Update after markets major moves:

1. I am likely to sell calls into any market strength against my portfolio.

2. I will remain patient on purchasing banks but yield hungry investors may want to consider purchasing a % ahead of May dividends.

3. I continue to have no interest investing in the mining sector.

My cash holding grew last week after sales of iiNet and Challenger.

*Watch for alerts next week.

1. For traders – I will be looking for opportunities to go short over the next few weeks.

What Matters this week

The ASX200 looks likely to open up around 35 points higher on Monday, after solid economic date from the US.

Potential Investing opportunities for the coming week

  • Hopefully investors are now sitting on a healthy cash position awaiting buying opportunities.

Potential Trading for the coming week

  •  I could scale short positions into strength with stops over 5780 basis the ASX200.

Portfolio Holdings

My portfolio outperformed the market last week where the ASX200 fell -4.8%.

1. Bank of Queensland (BOQ) -3.0% - medium term investment.

2. Mirvac (MGR) -3.9% - medium term investment.

3. Vocus (VOC) +2.9% - Medium term investment.

Cash for future purchases, ~40%.

  • Watch for alerts next week, I am watching MGR closely.

Australian ASX200

I continue to look to spread my portfolio into more growth stocks going forward but importantly patiently.

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  ASX200 REIT Index Monthly Chart

  Chart 6  Volatility Index VIX Weekly Chart

Chart 7a – The US 10-year Interest Rate Quarterly Chart

Chart 7b – The German 10-year Interest Rate Quarterly Chart

 American Equities

The American indices continue to show signs of topping out for 2015, a final blow-off is starting again look possible.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Dow Jones Index Daily Chart

Chart 10 – S&P500 Monthly Chart

Chart 11 – NYSE Composite Index Monthly Chart

Chart 12 – Russell 2000 Index Monthly Chart

 Chart 13 – NASDAQ Monthly Chart

Chart 14 – The Canadian Composite Monthly Chart

 European Indices

European Indices still look set to rally another 2-3% aided by 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 bullish at present, led by China as it opens its market to offshore investors, Japan is still receiving great strength from ongoing aggressive QE.

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 have been standouts but some industrial stocks are now looking better. Overall I still remain a net seller of the “yield play” and looking to buy growth stocks BUT not resources.

Chart 23 – BHP (US) Monthly Chart

Chart 24 – BHP Weekly 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 – 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