Market Matters Report / The Hickman Report - Sunday 18th May 2014

By Market Matters 18 May 14

The Hickman Report - Sunday 18th May 2014

The Hickman Report - Sunday 18th May 2014

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Market Matters Summary for Sunday 18th May 2014

  • The ASX200 rallied 18 points last week, ignoring a 92 point fall by the Dow as heavyweights BHP & CBA rallied.
  • Overall, equities are remaining quiet as investors are trying to fathom the recovery but almost deflation scenario.
  • This week, the yield of Australian 10 year bonds hit a low for 2014 of 3.7%, yet equities are hovering at 5 year highs in anticipation of continued strength in company earnings. The US economy feels to have taken a backward step, Europe is fighting deflation and expecting the ECB to stimulate next month.
  • We’ve had various forms of economic stimulation around the world since 2008 and its not working as desired.
  • I am still looking for a pullback in equities from these levels, but my logic on the cause appears wrong for now, it clearly is more likely to be caused by struggling economies rather than rising interest rates. This explains why Newcrest Mining (NCM) and QBE Insurance are looking bearish. 
  • We are in an historically dangerous period, in 2013 the Dow fell -6.4% from the 22nd May & the ASX200 -11.8% from 15th of May, aggressively led by the banks who mostly topped in the 1st week of May – markets often repeat. The ASX200 has fallen 4 out of the last 4 Mays for an average decline of 4.33%.
  • Tops are extremely hard to pick as markets like to go up and they often take a few attempts to fail. I am comfortably 70% in cash looking to buy a correction, note I am still net bullish for the next year or two yet.
  • If a struggling economy causes equities to have a correction banks may not lead as I first anticipated, I will simply watch individual stocks for buying opportunities.

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What Mattered Last Week

Last week was again quiet overall, with the exception of some mergers and acquisitions activity and a poor half year report from Orica (ORI), the mining services space continues to be tough. Also, CBA hit all-time highs and BHP significantly outperformed its peers…investors seem only to be happy at “the big end of town” at present.

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

  • Positive Performance – BHP +2%, Commonwealth Bank (CBA) +1.1%, Lend Lease (LLC) +4.3%, Suncorp (SUN) +2.9%.
  • Negative Performance - Fortescue (FMG) -4.8%, NAB -2.6%, Newcrest (NCM) -1.9%, Orica (ORI) -5.9%, QBE Insurance -4%.
  • Recently I moved to 70% cash, with Suncorp my only core long stock. If I am wrong and we have no correction, I simply make a small amount of interest and can relax and look to reinvest in coming months. 
  • Be patient, it can be a frustrating to wait, I remain confident a decent retracement is coming, BUT it may take weeks to unfold especially as overseas indices remain constructive. 
  • Also, as I mentioned before stocks will perform differently e.g. Fortescue is falling fast towards my buy target, but CBA feels miles away.


What Matters this week

  • No major change after a “nothing” week.
  • I remain bullish going forward for the next year, or two, and am not scared by the increasing number of “Doomsday Merchants” getting published at present. However, I still expect a classic “sell in May and go away” correction to unfold shortly.
  • Overall I believe the current 5 year bull market is maturing fast and hence retracements will become deeper creating buying opportunities. I am looking for at least two decent corrections in the next 6 months, the second likely to be over 10%.
  • My estimate where the overall market gives great value is around 5050, the lows of 2014, and I see the market as currently overvalued above 5500 where it reached recently especially with a strong $A and weakening Iron Ore price.
  • For me now sitting in a large % cash holding comes down to patience and constant evaluation of opportunities.

 

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Trading for the coming week

  • Buy Fairfax under 90c with stops under 83c and a target over $1.50.
  • Sell Magellan (MFG) on bounces towards $13 with a target of $10 where I become a buyer.
  • I am a keen buyer of Bank of Queensland under $11.
  • Not buying Crown has proven correct, I am a comfortable buyer of ½ usual volume around $15 with stops under $13.70.
  • I am a buyer of ½ usual volume of Fortescue in the $4.20 area- the potential China scenario restrains my volume.
  • I am buyer of Seek (SEK) between $15-15.50 with stops under $13.50.
  • Overall I am negative equities over the coming 2-6 weeks. The DAX failing after making fresh 2014 highs Is a bearish signal.
  • I will start to look for buying opportunities if equities correct, watch for am reports and Alerts.
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A list of some sleepers are below, some have already started to show signs of life, we will look to continually add to this list over coming months:

AWC, CSS, FXJ, KCN, KDL, LEI, OZL & 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), NASDAQ (m), Nikkei (m), REA (m), RMD (w), SEK (m), S&P (m), SUN (m), & WPL (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (d) & (m), BEN (m), BHP (w), CWN (m), FMG (w), FTSE (w), Hang Seng (w), IBEX (w), JBH (w), NASDAQ (w), NZ (m), Retail Index (w), RIO (w), S&P (w) STOXX (w), Vocus (w), WES (w) & WOW (m).

Bearish: Banks (w), BOQ (w), BHP (m), China (m), Copper (m), Dax (w), Gold (w), Magellan (MFG) (w), NCM (m) & QBE (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.


Australian ASX200

I am mildly bullish on a monthly basis but I anticipate a decent correction from May – July.

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 – ASX200 v NZX50 Index Monthly Chart

Chart 8 – New Zealand 50 Index Monthly Chart


American Equities

The American indices reached my sell levels in early March and since then the NASDAQ has fallen 8.7%. I am 50-50 whether we see an abc correction another or we rally to fresh 2014 highs prior to a +10% correction, this week should tell the story. I am actually leaning to the downside after a failed breakout by the DAX last week.

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 – NASDAQ Monthly Chart

Chart 14 – NASDAQ Weekly Chart

 

European Indices

The European indices still look net bullish for 2014, with the FTSE in a classic 3-4 consolidation prior to an assault on the 7,000 level. The Dax looks very bullish and similar to the NASDAQ, the recent 881 point retracement may over and an assault on fresh highs for 2014 are close at hand.

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 net positive, but messy short term. The Nikkei continues to be volatile and is now threatening a decent correction.
The China Index remains bearish long term with another +17% downside.

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 resulted in me now recommending a more balanced portfolio – there is clearly no sign of this at present. Actually it looks like yields may fall prior to rising, BUT this is the last “piece of the pie” and I have no interest chasing yield now.

  • NAB and Bank of Queensland are likely to be my preferred banks at some stage in the coming year.

Chart 23 – BHP Weekly Chart

Chart 24 – BHP Daily Chart

Chart 25 – Woodside (WPL) Monthly Chart

Chart 26 – RIO Weekly Chart

Chart 27 – FMG Weekly Chart

Chart 28 – Vale (US) Weekly Chart

Chart 29 – Newcrest Mining (NCM) Monthly Chart

Chart 30 – JB Hifi (JBH) Weekly Chart

Chart 31 – CBA Monthly 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 – Suncorp Group (SUN) Monthly 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) Weekly Chart

Chart 45 – Real Estate Australia Group Ltd (REA) Monthly Chart

Chart 46 – Vocus Communications (VOC) Weekly Chart

Chart 47 – Crown Resorts Ltd (CWN) Monthly Chart

Chart 47– Ansell Ltd (ANN) Monthly Chart

Chart 48– CSL Ltd (CSL) Monthly Chart

Chart 49– Resmed (RMD) Weekly Chart

Chart 50 Fairfax Media FXJ Monthly Chart

Chart 51– Australian Dollar (AUD) Weekly Chart

The $A is looking choppy and is currently having a good bounce, with the potential to challenge the 97c area.


Commodities

Gold looks to have completed a strong rally towards the 1,400 area. Next stop 1,100?

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.

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
marketmatters.com.au

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