Market Matters Report / The Hickman Report - Sunday 13th October 2013‏

By Market Matters 13 October 13

The Hickman Report - Sunday 13th October 2013‏

Hi All, Last week we saw the ASX200 recover back from the previous weeks’ low up 30 points clearly still focused with the continuing hope for an end to the partial US government shutdown. Similarly we saw the Dow up 165 points from the previous week’ close.

 

 
Why we need to be very vigilant in this market
Good morning everyone
Overview
If we’re being honest with ourselves, the world isn’t doing great. There are many obvious imbalances between asset pricing, the uncertainties and unpredictability of Quantitative Easing and how that will eventually play out, the outlook for currencies in an environment of massive central bank intervention, commodity prices – which are heavily linked to currency moves as discussed yesterday and obviously corporate earnings – which in the longer term drive share prices.

There’s no doubt, it’s a hard environment to operate in and with cash rates at such low levels, house prices high, bonds prices high (making yields low), the share market still looks pretty appealing given it provides good income, the chance of capital growth if managed properly, and above all, liquidity which is one of the most important aspects when considering an investment.

That said, we need to be very cautious and use all the tools – types of analysis – and experience to navigate these tricky times.
As it stands, the Market Matters Portfolio is 73% invested, leaving 27% cash. As we’ve been suggesting for some time now, selling into strength is our preferred option. Over the last 6 months the local market has averaged a range of 385 points which implies a target of ~5250 this month (March). Hence having reached 5216 last week the upside feels very limited in the short term and we can see a pullback towards 5100.
As we wrote in the weekend report, we remain in "sell mode" but anticipate slightly higher prices in most sectors before significantly reducing our equities exposure -  note we have already commenced slowly increasing our cash position.

So, a pullback now towards 5100, before we push higher in early April to around the 5300/50 region prior to turning back down as people start thinking of "sell in May and go away!"
 
Chart XJO Daily
 
Three stocks worth revisiting
There have been a large number of new subscribers join Market Matters in recent times, so we thought it worthwhile revisiting some of our stock specific views. Two stocks we currently HOLD, and one we’ve traded successfully recently, but it doesn’t currently reside in the portfolio
 
Healthscope (HSO); Australia’s second largest hospital operator relisted on the ASX in July 2014. It traded to a high of $3.15 within 7 months of listing before hitting a post listing low on the 12th Feb at $2.12. HSO now trades at $2.62 and we hold the stock from lower levels. We’re targeting $2.85 as our sell level.

The healthcare sector is clearly an area we should watch and at the right prices, have in our portfolio. Volume growth underpinned by an ageing population, complexity which basically means more complex surgery costs more, and rising prices which refers to the $$ paid for each procedure by the Insurers, will underpin earnings growth into the future. It just becomes a question of the value ascribed to this earnings stream.
Chart HSO
 
ANZ Bank (ANZ); Has been a poor performer in the Market Matters portfolio, after we purchased at higher levels. A recent rally from $22 to a short term high above $26 was encouraging. We think banks will largely range trade in 2016 and we will be looking for opportunities to lighten exposures into strength or sell options against the holding for sophisticated investors.

We think a short term pullback is likely (as per our call on the index) before ANZ breaks above $26 in the lead up to its dividend in May. Note; ANZ is the next bank off the line to go ex-dividend on the 9th May, with expectations of 86cps fully franked. On yesterday’s price and including franking, this equates to a grossed yield for the half year of 4.8%.

Chart ANZ
 
BHP Billiton (BHP); Does not currently appear in the portfolio however we have traded the bounce recently. Interesting to look at BHP in US dollar terms which has reached our retracement target area and we now expect sideways action between $US19 and $US30. We think in the short term the bounce in oil may be complete and we are 50-50 just here, combined with the negative set up from RIO causes us concern for BHP.Hence we are now neutral - negative BHP for the next 3-6 months.

Chart BHP US Monthly + BHP Weekly
 
Summary
  • Markets are tricky and we expect a short term pullback to 5100
  • We are sellers of Healthscope (HSO) should it reach our $2.85 target
  • We are looking for higher levels in ANZ before lightening or selling options for sophisticated investors
  • We are now neutral/negative BHP after the easy money seems to have been made from the lows  
 
Overnight Market Matters Wrap
 
  • Wall Street fell last night on low volume and on the back of weakness in commodity shares as investors prepare for their Easter long weekend break. The Dow dropped 80 points (-0.5%) to 17,503 whilst the broader S&P 500 fell 13 points (-0.6%) to 2,037.
  • Oil took a slide last night, on the back of the rising US$ and a report showing stockpiles were at their highest levels for eight decades. Crude oil dropped US$1.65 (-4.0%) to close at US$39.79/bbl.
  •  Another piece of negative news was the continued drop in Iron Ore, which settled down 49c (-0.8%) to US$57.87/t, adding to that, the price of gold, which fell by more than 2% last night to close at US$1,220.90/oz as volatility and global risk concerns dissipate.
  •  The June SPI Futures is indicating the ASX 200 to open down 30 points this morning, around the 5,110 level.
 
 
 
The Numbers that Matter  
   
June Share Price Index -34, or (-0.7%) to 5,098
ASX 200 (previous session) 5,142
   
AUD/USD 0.7529
   
Dow Jones -80, or (-0.5%) to 17,503
S&P 500 -13, or (-0.6%) to 2,037
NASDAQ 100 -35, or (-0.8%) to 4,403
   
London FTSE +6, or (+0.1%) to 6,199
German DAX +33, or (+0.3%) to 10,023
   
Gold Spot Futures -$27.50, or (-2.2%) to US$1,220.90/oz.
Nymex Crude -$1.65, or (-4.0%) to US$39.79/bbl.
Iron Ore -$0.49, or (-0.8%) to US$57.87/t
   
BHP closing price in the U.S. -$0.65, or (-3.8%) to $16.95