New 2017 highs for the ASX200 as the “shorts” get squeezed. (IGO, CYB, TLS)
The ASX200 enjoyed a classic December day yesterday rallying 42-points / 0.7% to challenge the year’s high of 6052. This morning following another strong night on Wall Street the market is looking to open around the 6060 level finally reaching a fresh 2017 high as it follows our anticipated short-term path for December / January.
Investors / traders should not underestimate the capabilities of local stocks over the next few weeks, if we purely play some catch-up with US stocks it would be a decent move i.e. this December the ASX200 is up +1.2% compared to the Dow +2.1%.
The takeover offer by Oracle for Aconex (ACX) set the positive tone locally yesterday, especially with over 10% of ACX’s stock sold short, we again question whether some other heavily shorted stocks may find some love as the hedge fund managers lick their wounds – as we often say the market often moves in the path of most pain for all players!
Overall there is no change to the view of MM with a 6125-6150 target area to say goodbye to 2017, just under 2% above yesterdays close and what would be a healthy +8.1% return for the year not including dividends.
Today we are going to focus on 3 stocks in the Growth Portfolio we are considering selling, including one which is heavily shorted.
ASX200 Daily Chart
Three stocks we are considering selling
1 Independence Group (IGO) $4.34
Gold and Nickel company IGO has had a roller-coaster year including 3 decent corrections since May alone of 18.1%, 18% and 14.7%, plus a major fall of 43.2% from late 2016. Only the most blinkered investor would fail to acknowledge that IGO is a volatile stock that is in the active / trading basket.
Also, IGO is the second most shorted stock on the ASX with a huge 18.8% of its stock short-sold. It’s hard to imagine this number growing whereas just a little covering could easily see a pop higher.
MM is considering taking profit on our IGO if we see strength over $4.63.
Independence Group (IGO) Daily Chart
2 CYBG Plc (CYB) $5.76
CYB has rallied strongly this financial year gaining ~22% and looking after MM very nicely in the process.
We are currently long from $5.45 and can easily picture the stock receive a nice push towards $6 if we get some classic end of year window dressing. The stock is no longer the hidden gem it once was now being on a number of analysts top lists for 2018, hence we believe it’s time to be a touch fussier.
MM will consider taking profit on our CYB around the $6 area.
CYBG Plc (CYB) Weekly Chart
3 Telstra (TLS) $3.68
We have flagged our thoughts on TLS for a while but it’s important to keep them firmly in mind as we may find ourselves acting in coming weeks.
- We are currently sellers of TLS above $3.85.
- We may increase our position under $3.30.
MM simply believes TLS is now an active investment vehicle that will more than likely provide a few excellent opportunities per year to pick up its two 11c fully franked dividends.
Telstra (TLS) Weekly Chart
Global markets
US Stocks
US stocks continue to advance on optimism around the Republican tax bill. Just Imagine if we get the ~$US3 trillion sitting offshore returning to the US the degree of corporate activity, rising dividends and company buybacks that will potentially be unleashed.
No change, we still need a ~5% correction to provide a decent risk / reward buying opportunity, no sell signals have been generated to-date.
The feeling is traders are going short and then getting caught as the market fails to correct.
The current strong rally since Donald Trump’s election adds to our confidence with buying a decent ~5% pullback.
US S&P500 Weekly Chart
European Stocks
European stocks look to be failing after their recent break out to fresh 2017 highs, we remain neutral / negative Europe over the next few weeks.
German DAX Weekly Chart
Conclusion (s)
We remain short-term bullish the ASX200 and hence are continuing to refine our plans to increase cash levels into any unfolding market strength.
Overnight Market Matters Wrap
· The US equity markets hit an all-time high overnight with the Christmas rally mode clearly on.
· Continued progress with the US tax bill once again underpinned the positive tone in the US with European markets also joining the bull run with the German DAX leading the way rising 1.6% back towards its recent highs.
· The commodity market remained buoyant, with strong demand for iron ore boosting the price another 3.5% to over US$74/t lifting most of the industrial metals which led to BHP in the US closing an equivalent of 0.7% higher to $28.45 from Australia’s previous close.
· US Treasuries lost ground, with the 10 year bond yields back around 2.4%. The A$ is slightly firmer at around US76.7c.
· The December SPI Futures is indicating the ASX 200 to open 30 points higher towards the 5740 level this morning.
Disclosure
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Disclaimer
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