The tune remains the same, for now
The ASX200 has remarkably continued into its 18th week of trading in the very tight range between 5629 and 5836.There has been at least 2/3 occasions when we felt a breakout was imminent only to be proved wrong as the market reverted back towards to its 5730 mid-point, exactly where we are likely to open today. Recently the local banks and financials have enjoyed some positive momentum while the resources have suffered a mild pullback, nothing to write home about but when the market continues to tread water it’s the main standout. We expect the resources will find some love today following BHP’s mild reversal on Monday to close in the black, this may give us the opportunity to take profit in Alumina (AWC) – in the US BHP closed up 27c.
Over the last few days we have witnessed some cracks emerging in asset prices with the below 3 catching our eye:
- The Sydney property auction clearance rate falling to its lowest level since 2015.
- A “luxury car index” used by Commsec which has proved to be a reliable indicator for the health of the economy, including housing, suffered its largest drop in 5 years.
- The price of Bitcoin fell 40% in two weeks although it has since regained over half of this decline.
For now equities are holding up extremely well but considering we’ve had an asset price appreciation bull market since Quantitative Easing (QE) commenced following the GFC the transition to Quantitative Tightening (QT) is highly likely to have a meaningful impact in the opposite direction at some point in time, the timing of any such reaction will clearly be the key.
Our preferred scenario for now remains a small correction back towards 5550, only around 3%, before rallying into Christmas / 2018. However it would appear that the market needs a definitive catalyst to break out of the current trading range.
ASX200 Weekly Chart
US Stocks
US equities rallied overnight with 6 out of the 10 sectors of the S&P500 closing in the black, the financials led the way gaining over 1.2% while the interest rate sensitive stocks were the largest drag.
Today we read that Toys “R” Us are expected to file for bankruptcy, bad news for kids at Christmas and another warning for retail stocks in today’s internet / Amazon environment.
There is no change to our short-term outlook for US stocks, we are targeting a ~5% correction i.e. a around 130-points by the S&P500.
US S&P500 Weekly Chart
With markets fairly quiet we thought today was an ideal time to have a quick looks at 4 large well known US stocks from a technical perspective to gauge any insights to where our market may be headed into 2018.
Alcoa (US)
Alcoa US manufactures metal products but importantly is highly correlated to our own Alumina (AWC) from a share price perspective. The stock has appreciated 300% since early 2016 in a very similar manner to our own resources sector. However the stock has now reached our target area and we feel there is a strong risk that it corrects back to the lows of 2017 hence we are looking to take profit on our AWC holding allowing us to sit back and evaluate what comes next i.e. the easy money has gone!
Alcoa (US) Monthly Chart
Apple (US)
Apple has also enjoyed an excellent run since around Christmas 2016 but technically the short-term picture is fairly clear and negative. We are bearish Apple over coming weeks targeting a correction back towards 145 i.e. around 10% lower.
Apple (US) Weekly Chart
Google (US)
Google is a bit tricky just here but if it was to correct hard back towards ~750, the lows of 2016, we would be very keen buyers – obviously unlikely at this stage.
Google (US) Monthly Chart
Microsoft (US)
Microsoft is a great / clear chart pattern at this point in time which is bullish medium-term but potentially getting close a to 10-12% correction short term which should provide an excellent buying opportunity if / when it eventuates.
Microsoft (US) Monthly Chart
Conclusion (s)
No real change, we prefer banks / financials over resources into Christmas / 2018 and on an index level our preferred scenario is a pullback towards 5550 in the coming weeks.
The 4 US stocks we reviewed are all at risk of a short-term correction but the bull market medium-term looks intact.
Overnight Market Matters Wrap
· The US equity markets closed with little change overnight as investors sit on the sideline waiting for important economic data this week (current account balance tonight and FOMC meet on Thursday.
· Gold futures lost ground overnight, off 0.97% however geopolitical tensions may soon rise as we see further drills over the Korean peninsula and Australia’s 6 warships heading north towards the South China sea for military exercises.
· The September SPI Futures is indicating the ASX 200 to open 7 points higher, towards the 5730 area 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.
Disclaimer
All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 19/09/2017. 8.00AM.
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