Morning Report Wednesday 29 July 2015
With our positions growing and the market remaining volatile, we believe it’s extremely important to keep our fingers on the pulse with a special thought to what comes next.
1. The US stock market remains poised for a 15% correction, but after trading sideways for 5 months, a final surge to fresh 2015 highs appears likely (~2.5% higher). Hence we are net sellers into strength, looking for a decent retracement to rebuild the portfolio – see charts 1.
2. The resources sector feels oversold and due a decent bounce, we still believe this sector will actually outperform in coming weeks.
(a) Iron Ore has already rallied 20%, unnoticed in the last few weeks. We believe the bounce is around half complete and stocks like FMG will catch up soon. (b) Crude Oil has fallen over 20% in recent weeks as negative news has built momentum, we believe this move is not complete, but the acceleration will soon end. (c) Gold has tumbled to multi year lows in recent weeks primarily due to a surging $US, again we feel a significant countertrend rally to commence shortly. – see charts 2a, 2b and 2c.
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