Australian Investment Blog

Like clockwork, the ASX200 has rolled over around the 10^th of November with the catalyst this time being the large sell down of Woodside (WPL) shares by Shell, potentially sucking $3.5bn of short-term buying out of the local market. We should stand back and consider what may unfold over the coming 1-2 weeks if the market continues to follow its usual seasonal path:

1. Since the GFC, the ASX200 has on average corrected over 5% in November – this would target ~5750 with a more conservative 3% at 5870. This morning, the futures are implying an open ~5945, or 1.77% below last week’s high.

2. Since the GFC, Commonwealth Bank (CBA) has on average corrected over 6% in November – so far it only retraced $0.93 / 1.1% from Monday’s $81.56 high.

Overall following the ASX200’s +7% advance since early October, we remain bullish the local market for now and would be keen to allocate our 8.5% cash position into appropriate stocks if / when we get a decent pullback, but the above statistics clearly show there is no urgency just yet:

· We remain bullish the ASX200 into 2018, targeting a solid break over this 6000 area.

· We would need a break back under 5825 to lose this short-term bullish outlook.

Today we are going to concentrate on 3 important issues both within the market and our potential / likely investing plan over the next few weeks:

1. Copper and the base metal complex which looks to be under pressure.

2. 3 Potential sells within the MM Growth Portfolio.

3. Some potential buys for the MM Growth Portfolio.

ASX200 Daily Chart

1 Copper & the base metals.

Overnight the very influential copper price fell almost 2% leading to resource stocks coming under distinct pressure with BHP for example set to open down almost -2.5%. Although we are bullish the “reflation trade” and especially base metals, we currently only have 5% exposure via Independence Group (IGO) because on balance we see weakness from current levels with the Bloomberg Base Metals Index looking to be in the early stages of a ~7% correction.

Bloomberg Base Metals Spot Index Weekly Chart

There are number of potential targets we are watching in the space with heavyweights BHP and RIO clearly offering outstanding quality, but OZL also looks excellent on a risk / reward basis if buying ~$8.

OZ Minerals (OZL) Daily Chart

2 Three potential sells within the MM Growth Portfolio.

At the correct price, MM is not afraid to sell any of its shares as was demonstrated when we sold all of our CBA and ~50% of our portfolio close to the 6000 level in the ASX200 back in 2015 – a pretty unpopular move at the time. We have specified our profit targets for the likes of Aristocrat (ALL) and Challenger (CGF) over recent weeks, hence today we have covered 3 stocks that may also be in our selling cross-hairs but have not been discussed as often:

1 Newcrest Mining (NCM) $23.22

We are around square on our holding in NCM following its solid rally since early October. The $US Index has again turned lower which is usually positive for both gold and NCM. Ideally we will take a small profit on NCM between $24 and $25, but if it holds around current levels and the broad ASX200 falls we would consider a relative value switch moving forward.

The $US Index Weekly Chart

2 Bank of Queensland (BOQ) $12.62

We are showing a 5% profit on our BOQ position with the stock having traded ex-dividend $0.66 fully franked this month. We are considering switching this holding to CBA / CYB depending on relative prices in coming weeks with one eye on CBA’s dividend next February.

Bank of Queensland (BOQ) Weekly Chart

3 Telstra (TLS) $3.42

TLS has been friendless since August’s dividend slash, we are long and are currently showing a ~3% paper loss – probably better than a lot of the market but we still hate losing. The lack of interest from investors at current levels is not inspiring and we may take a loss on this position, especially if we see better quality stocks caught up in any general market sell-off; the next week will be interesting because the TLS of old virtually always outperformed in weak periods for stocks.

Telstra (TLS) Daily Chart

3 Potential buys for the MM Growth Portfolio.

We are always on the lookout for quality companies at attractive prices but this has been harder with the ASX200 rallying above 6000. However the current weakness may throw up some opportunities a few of which are touched on below, and in the Weekend Report:

1. Banks – we are considering increasing our CBA position and / or buying into CYB Plc.
2. Financials - we are considering buying into Macquarie (MQG).
3. Resources – no change, we like BHP, RIO and OZL into decent weakness.
4. Tourism – we like Crown (CWN) around $12.
5. Retail – we continue to have interest in Harvey Norman (HVN) under $3.50.

Global Stocks

US Stocks

The US continues to oscillate around all-time highs and although we need a ~5% correction to provide a decent risk / reward buying opportunity, no sell signals have been generated to-date.

US S&P500 Index Weekly Chart

European Stocks

European stocks look to be failing after their recent break out to fresh 2017 highs, we are now neutral / negative the Euro Stoxx technically, following the break back under 3600. Notably at this point in time the fall has not been confirmed by the German DAX Index.

Euro Stoxx 50 Weekly Chart

Conclusion (s)

We believe the current market correction has further to unfold and we will be looking to re-jig our portfolio (s) into such weakness, a number of thoughts are outlined above .

Overnight Market Matters Wrap

· The US equity markets resumed its recent retracement, with the indices ending its session in negative territory.

· US producer prices grew 2.8% in October, the highest rate in more than five years as energy prices were affected by Hurricane Harvey.

· Copper fell 2% on the LME while nickel weakened more than 5%. Oil is down 1.6%, while iron ore bucked the trend in commodities and rose 1.6%

· The December SPI Futures is indicating further weakness to be seen in the ASX 200, expected to open 23 points lower towards 5945 this morning.

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

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