Lift off for stocks today (sort of!)
A good session to the end the week with stocks opening firm and trading higher through the day – a couple of standouts in Henderson Group (HGGDA) which traded up to our targeted level of the $44.00 (old $4.40) level and beyond however given we trimmed the position by 3% early in the weak to add BT to the portfolio, we’ll continue to hold our 5% position for now. The stock closed up 5.4% to $45.05, while BTT put on 2.34% to close at $11.36.
On the broader market today, the IT sector led the way, while most weakness was felt in the Utilities - an overall range of +/- 55 points, a high of 5793, a low of 5738 and a close of 5788, up +50pts or +0.87%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
We talked Iron Ore this morning covering our three holdings in the sector, which is very high for us however the recent selloff has been reasonably extreme. Iron Ore in Asia bounced today by +2.25% and is attempting to find a base. We typically see reasonable strength in Iron Ore in June following what’s typically a weak period in May. Last year Iron Ore fell -24% in May before bouncing back in June by +11% then another +6.6% in July. This year we’ve seen some fairly extreme weakness in March (-11.92%), April (-14.42%) and May (-17.12%). Periods of excessive weakness are more often than not met with at least a strong counter trend bounce and that’s what we’re now positioned for.
Iron Ore Monthly Chart
In our top 10 prediction for 2017 released in January, we touched on both oil and Gold, and this helped to shape our investment decisions throughout the period.
Iron Ore will peak in Q1 and track lower in a choppy decline, targeting ~$60 by year end while Oil will range trade between $40 & $60 presenting good trading opportunities throughout 2017.
Iron Ore and Oil are two key commodities that fulfilled our predictions laid out in early 2016. For Iron Ore we predicted a move up from below $US40 /tonne to ~$US70 /tonne and we now sit ~$US81/tonne, so this has clearly surpassed our very bullish expectations while our call for Oil to trade up to ~$60 during the year when it was nearer to ~$30 certainly went against the grain at the time - with Oil hitting a high above $US55 /bbl. The risk / reward on both trades simply does not stack up at this juncture.
Chart as at 19th January 2017
So at this juncture, the price of Iron Ore has traded back below our bearish downside target of $US60/ tonne to settle around $US56/tonne overnight. We continue to believe that this decline is now very mature, and good risk rewards trading opportunities are now starting to show. For those with an extremely high risk tolerance, Atlas Iron (AGO) and Mount Gibson (MGX) are two of the more leveraged Iron Ore stocks on the ASX, however they’re too speculative for us.
Mount Gibson (MGX) Daily Chart
US Non-Farm Payrolls tonight which will be interestingly – looking for 185k jobs added and the unemployment rate to be 4.4% - which is pretty astonishing given it was near 10% in Dec 2009!
US Unemployment Rate
Have a great weekend and keep an eye out for the report on Sunday,
The Market Matters Team
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.
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