A lazy +95pts today as pent-up buying hits the tape
We often talk about the high amount of cash and the level of caution currently residing in the mkt which to us means a few things – and we’ve covered these in recent notes & video updates 1. A major market top is unlikely to play out when the mkt is positioned for one – the concept of mkts moving in the direction of most pain is relevant here 2. Aggressive buying of dips happen when cash levels are high, and todays move is testament to that 3. Seasonal weakness around May / June such a well-known thematic now that it’s almost self-fulfilling, so buying pressure keeps building and just one catalyst triggers the wave of buying, which we saw today.
After today’s very bullish move led by the financial sectors we now have at least one foot in the bullish camp. We wrote this morning that if the ASX200 can break over 5700 we believe it should target 5800 minimum fairly quickly. With the benefit of hindsight, that statement was well and truly undercooked given we cracked through 5700 early on today and roared up to close just -27pts below the 5800 level.
We are currently 90% invested in the MM Portfolio and some of our stocks had a good day – the likes of Janus Henderson (JHG) and BT (BTT) two of the best despite weakness in the British Pound which would normally be a headwind. Suddenly our 10% cash holding goes from ‘feeling perfect’ to feeling like a bit of a weight! That said, we continue to think markets will throw up opportunities and we clearly have the ammunition to take advantage of them when they arise.
Back on the 6th June with the ASX down more than -80pts the banks only accounted for -20pts of that decline which showed aggression of selling targeting that sector was starting to ease after the -11% fall from May highs. Today the mkt put on +95 and the banks accounted for +34pts – the strongest sector on the day. The US will raise interest rates this week – it’s a given – and the mkt is positioned for the hike, but it’s not positioned for many more. If the Fed are more bullish on rates then expect the financials to do well at the expense of growth (tech) and that suggests our market will start to outperform the US.
On the broader market today we had an overall range of +/- 91 points, a high of 5772, a low of 5681 and a close of 5772, up +95pts or +1.67%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
A couple of v interesting moves today in stocks we own. Obviously Banks were strong and we have WBC, NAB and CBA in the portfolio - Westpac the best of them putting on +2.8% while it was a very strong move in CBA. Banks have a weak May, which we know (and they certainly did) however they often base out in June before July is the best month of the year for them. We think this year will track historical seasonality and we’ve now seen the short term low for the banks stocks.
Commonwealth Bank (CBA) Daily Chart
Elsewhere, the diversified financials also had a crack today, particularly the UK facing ones which rallied hard even though the pound has been weak – which is obviously a headwind for these guys. They had a lot thrown at them last week with the UK election result and now the uncertainty around how BREXIT will play out, however they bounced back hard and the positive trends seem well ingrained. Henderson changed names and code today and is now Janus Henderson under a new code JHG.
It’s a pretty simple story in JHG, being very cheap relative to peers both in Oz and Globally, is now on the radar of more global investors, they’ll talk big in terms of synergies which are typically very achievable in a funds management business (so much leverage through scale) and then they’ll be revenue benefits through cross selling etc. I know what you’re saying, why did we trim our holding recently if we’re bullish? Simple answer – risk.; Having 8% in a stock going through a major restructure, merger etc carries risk, and we felt more comfortable with 5% in it, and 5% in BT.
Janus Henderson (JHG) Daily Chart
BT Investment Management (BTT) Daily Chart
Have a great night
The Market Matters Team
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