Month: July 2015
**The S&P500 Futures is up ~1% this morning after reports of Greece agreeing to demands by its creditors this morning**
**Reports of Greece agreeing to demands by its creditors this morning**
• The ASX200 rallied higher this morning as expected, as high as 5,526 with the global macroeconomic theme dominating our local market. The rally was contributed by reports of Greece submitted its proposal to the Eurogroup, meeting most of their demands. Risk was reduced by the afternoon and before the weekend however, as volatility seems to be the new ‘norm’ and the ASX 200 closed only 21 points higher (+0.4%) at 5492.
• Meanwhile, closer to home, the China A-share futures is currently trading ~9% higher this afternoon, as short selling is now limited and some liquidity is being provided by its Government.
• The materials sector continue to bounce back from its recent lows, Fortescue Metals (FMG) rallied 1.7% higher at $1.81.5 – We currently hold FMG via call options yesterday as mentioned live to Subscribers.
• The Banking sector is starting to concern us, Commonwealth Bank (CBA) closed 0.2% higher at $85.79, While National Australia Bank lost 0.2% at $33.07.
The current 34% crash in the Chinese stock market (chart 1) has created waves of selling through other markets, as investors panic to raise cash – in China yesterday, aggressive selling was witnessed in everything from eggs to sugar and even pig food. Whether the selling is because people have to cover margin calls, or simply because of the belief that the share market correction will lead to problems for the Chinse economy, the result remains the same. The important thing to remember is the collateral damage of panic selling across all markets leads to excellent opportunities to purchase great stocks at good prices. Overnight, Iron Ore plunged over 10% to fresh 2015 lows, as we have been targeting. This should lead to Fortescue Metals (FMG) reaching our targeted buy trade area – see charts 2 & 3.
• I reiterate, it’s been a tiring week so far, the ASX 200 had a weak morning session, down as low as 5383(-86 points) , only to claw back its day’s losses and close 1 point higher at 5471.• With Iron Ore currently trading 6.2% higher in Asia, the sector outperformed the broader market. Fortescue Metals (FMG) rallied 6.6% higher at $1.785. Subscribers received a live trading alert when we purchased Fortescue (FMG) via call options. • A reversal in China’s market was seen today, rallying as its government began to help stabilise the panic selling situation. The Sydney Morning Herald online currently has a headline that was worth mentioning “Chinese steel is now cheaper than cabbage”. We now expect as consolidation to be witnessed in the Chinese Share market.
Over recent days, we have witnessed carnage in the commodities space, as perception increases that the current 28% decline in Chinese stocks will hinder their underlying economic growth. Overall, this makes little sense to us as Chinese stocks are still up 15% in 2015 and 69% over the last 12 months – the ASX200 would love that performance. Simply, commodities, and related currencies, are continuing with their bear markets of recent times. Overnight, Gold fell $US20, Iron Ore -5.1%, Copper -3.1%, the $A broke under 74c and Crude Oil was basically unchanged after being down over 3% at one stage. We do not think the related reource stocks have yet reached our trading buy areas, but the time is approaching fast.
• It’s been a tiring week so far, with the ASX 200 reversing all of yesterday’s gains and losing 112 points (-2%) at 5469.• Much of today’s weakness was due to global investors reducing their risk exposure, as China’s stock market continues to decline with Iron ore losing ~8% in Asian trade.• With China currently 6% lower, BHP Billiton (BHP) lost 3% to $25.43, South32 (S32) down 5% at $1.725, Fortescue Metals (FMG) -6.2% at $1.675 and Rio Tinto off 3.3% at $50.06.• The banks also contributed to the bloodshed witnessed in the broader market, Commonwealth Bank (CBA) lost 2.2% at $85.77 and National Australia Bank (NAB) down 2.6% at $33.33.• The Health Care sector was the stronger link and this was seen with Resmed (RMD) defying the weakness in the ASX200 today and rallied 2.6% to $7.60.
Last night, Crude Oil fell 7.5%, Iron Ore 5.4% and Copper 3.5%, while US equities were only down ~0.5%, basically dismissing all things Greece. Trading opportunities in the commodities space may be the next buy signal this very volatile market generates. At MarketMatters we have repeatedly been predicting fresh lows in Fortescue Metals (FMG) and Santos (STO), these were achieved yesterday for FMG, the question is, when does the selling reach panic levels and generate some potentially great trades? Markets remain very volatile at present, leading to pricing extremes in different sectors at different times i.e. both overpriced and underpriced. For example Commonwealth Bank (CBA) crashed 18% into panic lows in mid-June when the ASX200 was trading ~5470. Yesterday, the ASX200 closed at the same level, but CBA has rallied over 9% from the June lows. Hence the answer to the most popular question at present:
• It was a pleasant and strong session in the ASX 200 today ending 106 points higher (+1.9%) at 5,581.• The broad rally was likely seen from global investors exiting China and reweighting back in other Asia-Pacific counterparts after trading was halted in more than 25% of shares listed in China in an attempt to stem the tide of selling in their equities market. That’s close to 800 stocks on halt!• One could be forgiven in thinking that all is right with the world after today’s performance. Having seen the price of oil and iron ore down last night, we still witnessed BHP Billiton (BHP) and RIO Tinto (RIO) both up on the day (BHP +0.9% and RIO +1.1%). Fortescue Metals (FMG) rallied 4.25% at $1.78 – refer to morning comments. In the energy sector, Woodside Petroleum (WPL) closed up 52c (+1.5%) at $34.64 and Oil Search (OSH) up 21c (+3%) at $7.00. It was just one of those days!• Banks were strong across the board – Westpac Bank (WBC) the strongest link, up $1.27 (+3.9%) to $33.76, while Commonwealth Bank (CBA) shot out of the gates at the start, finishing up $1.39 (+1.6%) to $87.69. • Financial Services, IOOF (IFL) resumed its descent, finishing on its day’s lows at $3.27, after fronting a senate economic committee inquiry. • In the Consumer Discretionary space, Myer (MYR) rallied 6.2% at $1.29. We currently hold this as a trade only.
While the counting is not complete, the result appears a foregone conclusion with the “No’s” winning a resounding majority. As we have said recently, it was not a matter of if, but when Greece would leave the Euro, that time appears closer than many anticipated. We believe the real issues for the Euro will emerge if any problems arise in the future, from the low hanging fruit – Italy, Portugal and Spain. This week will definitely be a test of the markets belief that Central Banks can continue to be supportive in the face of adversity. All eyes are on the US S&P futures which have just opened down 1.5%, a negative indication for the ASX200 early today. The Euro currency is currently relatively controlled this morning, down only 1%, and 5% above the recent lows – see chart 1. Technically we still expect the Euro to fall at least 5-10% from current levels, implying further weakness in equities. The “the little Aussie battler ($A)” is already feeling the negative sentiment, trading at levels not experienced since May 2009 – see chart 2. As major uncertainty hits equity markets investors simply need to stand back and remain focused.
Really bullish, there's more to go in the reflation rally
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