Market Matters Report / The Hickman Report - Sunday 29th March 2015

By Market Matters 29 March 15

The Hickman Report - Sunday 29th March 2015

The Hickman Report - Sunday 29th March 2015

 

Please note there will be no morning/weekend reports over the Easter period as I am taking the family up to sunny Queensland. Also, excuse this week’s long report, but there is so much happening at present. –Shawn.

 

Afternoon All,

The market never ceases to amaze me with how quickly it can change its mind on direction and sentiment. Last Monday, the ASX200 opened just shy of 6000 as most investors, including myself, were targeting a strong move through 6000, only to be subsequently sold off during the rest of the week. This Monday, the resources component of the ASX200 will basically have the “kitchen sink” thrown at it: 

1. Crude Oil fell 4.98% on Friday night, after a +$US10/barrel rally, aided by news of the Saudi strike on Yemen. The selling of our Santos trading position (April 7.50 calls) was a classic example of “sell on news” working. Note I may reinitiate these positions if oil stocks fall too aggressively on Monday.
2. Iron Ore fell 4% on Friday night to multi-year lows; it will be interesting to see how far our major pure iron ore stocks (RIO and Fortescue) fall on Monday. Iron Ore was down 3.9% in Asia trade and hence seen by our market, explaining why FMG was down 12c on Friday.
3. On Friday night, Goldman Sachs successfully placed Chevron’s $4.73bn stake in Caltex (CTX) at discount of under 10% to Friday’s closing price. Importantly this will reduce the amount of “free money” held by fund managers, especially the $$$ looking for bargains in the battered oil and Gas sector.

 

The Caltex placement is almost exactly equivalent to the ASX200’s average daily turnover value, putting in perspective how much marginal cash that has been removed from the buyer’s war chests, specifically in the oil and gas sector.
The positive side of the market remains interest rates and importantly how they are supporting such high equity valuations in our market:

 

• Currently the market is all about interest rates and not about earnings: Prices are up 10.45% in the 50 leaders in the past year, but the Earnings per Share (EPS) are down 6.73%. However, the rates on 10 Year bonds have fallen from 4.0% towards 2.3% which explains the divergence.

 

Short term, the market is getting excited on further rate cuts in Australia with 3-year bonds falling to 1.7% and 10-years to 2.375%. These rates both look set to go lower in coming weeks, BUT I am anticipating the likely translation into “yield play” strength to be taking profit.
In the bigger picture I believe the above is not a healthy state of affairs, when interest rates do begin to rally it’s easy imagine a savage correction. Hence I am advocating transitioning all / part of a portfolio’s from “yield chasing” to growth.
Two stock situations have caught my eye over the last 48 hours, one I traded on Friday and one I will consider closely next week:

 

1. Bank of Queensland (BOQ) – BOQ has fallen 8.1% over the last 2 weeks after its recent report. I believe the selloff is too severe and has made the bank the cheapest in the sector, especially with a 36c fully franked dividend due on 16th April. At today’s prices, my favourite banks are BOQ and ANZ, not ideal as I own BOQ, CBA and NAB, but not worth switching as ideally I will sell/lighten CBA and NAB into strength.
2. iiNet (IIN) – It currently feels like there is a 50% chance of an increased bid for IIN, with MTU offering a script bid a logical candidate. Buying/holding IIN at current prices offers excellent risk / reward opportunities. Even though I recently took profit on my IIN position and considering reestablishing.

Summary:

1. I still believe the ASX200 will push towards 6100 over coming weeks, likely driven by the “yield play” but I will be selling this strength if it occurs – the market is now building in a 55% chance of a rate cut on 7th April.

2. I may again buy IIN next week after further research.
3. Sell part of my overweight (ex div.) CBA /NAB plus other stocks into any strong gains.
4. Continue to look to switch out the “yield play” into growth stocks.
5. For traders – (a) Watch FMG price action very carefully next week (b) I still believe aggressive traders can still buy STO and WPL for decent gains if the stocks fall heavily early this week.

 

*Watch for alerts next week.

 

Education

I have been asked numerous times to explain the option trades I do e.g. STO and FMG. Firstly, I would point out these are relatively sophisticated trades and should not be undertaken without understanding plus Financial Advice. The ASX website, link below, is a great place to start.

 

http://www.asx.com.au/products/equity-options.htm

 

• I bought the FMG April 190 Calls for 14c when the stock hit $1.80 (averaging previous purchase). In simple terms on 23rd of April (expiry day) at $2.10 these are worthy 20c BUT more importantly at $1 we only lose our 14c hence making it a relatively safe way to “catch a falling knife” stock.

 

MarketMatters intends to commence education webinars in the near future to aid our subscribers.

 

What Matters this week

The ASX200 is looking to open 25 points lower on Monday after the above mentioned resource’s issues on Friday night.


Potential Investing opportunities for the coming week

 

I am looking to be a seller of equities around 6100 but specifically banks into fresh all-time highs.
I am considering rebuying IIN as discussed above.

 

Potential Trading for the coming week

 

• I will run 1.90 stops on my FMG calls looking to take profit at $2.20 and $2.40.
• Traders can buy the oil sector via options, or stock, if they get oversold on Monday, looking for a short covering rally.

 



Portfolio Holdings

 

My portfolio underperformed last week, the ASX200 fell 1% courtesy of my overweight bank holdings. Fortunately the STO trading position helped nicely.

 

1. Bank of Queensland (BOQ) -7.1% - medium term investment – note I purchased on Friday.
2. Challenger (CGF) -1% - medium term investment.
3. Commonwealth Bank (CBA) -2.1% - Long term investment.
4. National Australia Bank (NAB) -1.4% - Medium term investment.
5. Vocus (VOC) -2.3% - Medium term investment.

 

• Cash for future purchases, ~10%.


Australian ASX200

I continue look to spread my portfolio into more growth stocks in coming weeks/months and cash.

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 7 – The US 10 year Interest Rate Monthly Chart


American Equities

The American indices continue to show signs of topping out for 2015 but a final blow-off now feels likely led by the poor performing Russell 2000 Index as opposed to the S&P500.

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 Weekly Chart

Chart 14 – The Canadian Composite Monthly Chart

 

European Indices

European Indices still look set to rally another 2-3% 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 and Japan is 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 that are now looking good. Overall I am now a seller of the “yield play”.

Chart 23 – BHP (US) Monthly Chart

Chart 24 – BHP Weekly Chart

Chart 25 – Woodside (WPL) Weekly 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 32b – CBA Daily Chart

Chart 33 – ANZ Bank (ANZ) Monthly Chart

Chart 34 – Westpac Bank (WBC) Weekly Chart

Chart 34b – Westpac Bank (WBC) Daily 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 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 48b – TPG Telecom (TPM) Monthly Chart

Chart 49 – Westfield Corp. (WFD) 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 – Crown (CWN) Monthly

Chart 55 – Coca-Cola Amatil (CCL) Monthly

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 an ultimate technical target now well under 70c.


Commodities

I am now neutral Gold as rising interest rates could easily derail the recent strength.

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, but I believe we now see a rebound towards $US55/barrel.

Iron Ore is 50-50 here, BUT the trend is clearly down.

Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart

Chart 63 – 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
marketmatters.com.au

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