Australian Investment Blog

Good Afternoon everyone

Market Data

What Mattered Today

Another day where Banks and Resources pulled in opposite directions with CBA up +2.93% to $78.00 and adding +12 Index points while BHP lost -3.15% to $17.83 taking -6 index points from the broader market, which finished up +22pts in another strong afternoon showing post an 11am low.

Since the end of April / start of May we’ve been suggesting that banks would likely outperform resources over the next month or so – and today’s trade seems to be the most obvious example of this in recent times….

On the 4th May we wrote…..

Let’s look at our view on the resources after the recent few days of weakness. We still are targeting a bounce in the $US from current levels that should depress the underlying commodity prices putting pressure on the underlying stocks. BHP has hit our retracement target ~$21.20 perfectly and we are now neutral at best. Technically a close under $19.30 for BHP is negative.

Below is the chart we published at the time with BHP just shy of $21

BHP Weekly Chart

And BHP after the close of trade today.

On the Banks we wrote at the time…

We remain short term positive the local banking sector targeting the 8400 area for the sector, or another 7-8% higher. A break under this month's low for the index, at 7500, would clearly negate this positive outlook. Individually our view on each of the big four banks is the same, with continued corrective strength anticipated.

ASX200 Banking Index Monthly Chart

And the Banking Sector after the close of trade today….

Now, the obvious Q to ask ourselves is what comes next?

We’ll talk more about this theme in coming notes however it seems the aggressive nature of the resource sell off could be exhausted in the very short term. Drops of such magnitude in reasonably tight periods of time can often be met with buying from oversold levels – and a short term bounce plays out.

Although possible, we doubt that any bounce now will be sustained given the seasonality of the $US. A higher $US will keep commodities under some pressure and any bounce in the likes of BHP/RIO/FMG etc should be used as a selling opportunity for now. Our buyer’s hat will come out at lower levels…Remember, we’re traders of commodity stocks and being active should yield better results in our view.

Regarding the banks, the above chart clearly shows that our view for outperformance in May is only in its infancy. The Banking index has just started to tick higher and although dividends will provide some sort of a headwind, we still anticipate higher levels in the month ahead. We were early buying Westpac (WBC), called ANZ near enough the low yet both now looks poised to fulfil our expectation of picking up the dividend, franking and some small capital gain.

Elsewhere, Bellamy’s (BAL) which accounts for 5% of the Market Matters portfolio is starting to perform reasonably well – with sentiment starting to shift. 5% is low for us given we’re ‘high conviction’ in nature however liquidity stops us from recommending a higher weighting.

As we write, U.S FUTURES are up a +7pts on the S&P 500…..which is pointing to a stronger session in the States…We continue to target a slight bounce before rolling over.

Stocks & Sectors Today
Source; Bloomberg

ASX 200 Movers

***What Matters Tonight***

European leads are positive with the FUTURES on the FTSE +33, DAX +69 & CAC +27
In the US DOW FUTURES are up +63 and the S&P 500 FUTURES are up +7

Regards,
The Market Matters Team
Level 12 28-34 O'Connell St
Sydney, NSW 2000.

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 10/05/2016. 4:50PM.

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