Author: james Carter
• The ASX tried to show some strength today, but it seemed every time it started to look stronger, the futures market would unleash its wrath and push it back down. The ASX 200 finished the day only 7 points higher (+0.1%) to 5,579. All in all, a very quiet lacklustre day.• The early rally in the session was based on the MSCI noting that it has delayed including ‘China A’ shares for benchmark index, meaning traders who recently bet for an asset allocation out of Australia (sell out) will not happen… YET. By 11.30AM, the RBA released its May minutes and what grabbed everyone’s attention was the comment by the RBA being ‘open to further interest rate cut’, aiding the $AUD weaken intraday.• There was little to show in the banks, with mixed results for the day. Australia New Zealand Bank (ANZ) and Westpac Bank (WBC) were both slightly down, whilst Commonwealth Bank (CBA) and National Australia Bank (NAB) were marginally better. ANZ -7c (-0.2%) to $31.09, WBC +1c (+0%) to $31.36, CBA +9c (+0.1%) to $79.91 and NAB +23c (+0.7%) to $31.83.• The Energy Sector was the stand out on the day after the crude oil price jumped 3.5% overnight. Woodside Petroleum (WPL) had the biggest impact to the market, up 62c (+1.7%) to $36.22, whilst Oil Search (OSH) finished up 21c (2.91%) to $7.43
Last night, the US stock market fell for the third consecutive session, but only closing 2.6% below its all-time high reached in May. Interestingly, the S&P500 has broken beneath the negative ”rising wedge” that I illustrated recently, increasing the potential of a sharp +10% correction in the S&P500. Last night the German DAX closed down over 1.1%, a fall of 10.7% from its all-time highs in April. The point to pick up here is do not underestimate how far markets can move in this increasingly volatile environment.
• The ASX 200 teased investors this morning, trading to its highs near 11a.m. at 5524, only to sell off by lunchtime and close just off the day’s low, down 27 points to 5471.• In the Iron Ore space, South32 (S32) lost 2.3% to $2.09 as investors digested S32’s recent announcement and see it could face its first write-down after spinning off from BHP Billiton (BHP) earlier this year. • The Media Sector saw Nine Entertainment (NEC) slumped 32c lower (-16.1%) at $1.665 after announcing a profit downgrade after market last Friday. We have no interest at present investing in this sector.• The Banking Sector closed mixed, with National Australia Bank (NAB) down 0.8 at $31.60 while the regional banks such as Bendigo & Adelaide Bank (BEN) closed 1% higher at $11.75.
Please note the Weekend Report will be written on Monday to avoid becoming out of date as we have a long weekend locally.
• The ASX 200 regained some composure in the last hour, bouncing off its lows of 5470 and ending only 6 points lower for the day at 5498. This was again led by the SPI futures market.• The last time the ASX 200 ended 4.8% lower in a week was back in May 2012 and took over 3 weeks before the weekly closed in positive territory.• The Banking Sector was again hit hard with National Australia Bank (NAB), the weakest link, down 47c (-1.5%) to $31.85. Australia New Zealand Bank (ANZ) fell 33c (-1.1%) to $31.17, Westpac (WBC) down 21c (-0.7%) to $31.03 and last but not least Commonwealth Bank (CBA) down 25c (-0.3%) $80.29. CBA is currently down for 3 consecution months, -17% from its highs.• Please note the weekend report will be released next Monday. Have a great long weekend!
When both investing and trading, a number of factors come into play, but two simple scenarios are identifying an excellent company ahead of the market and secondly identifying the correct price to pay for an excellent company. Our activity in Commonwealth Bank (CBA) this year falls clearly into category two, as we exited the stock around the $95 level and have so far enjoyed the 16% correction back to the $81 level – see chart 2b. Patience looks like it may well pay off in coming days / weeks as the stock enters my initial target area and I am likely to purchase 1/3 – 1/2 of my potential ultimate holding.
• It’s been a case of déjà vu each day. So far this week, selling has been led by the SPI futures in the morning, the norm at present. • The ASX 200 closed at its session lows, down 79 points (-1.4%) at 5504.• A tiny bit of light at the end of the tunnel peeped before midday, Australia’s trade deficit surprised most and widened. This gave investors the impression of room to cut interest rates further in the future. However, this was short lived after Hong Kong’s benchmark started to slide after reports of further margin lending tightening was being enforced by more financial services firms.• In the banking sector, National Australia Bank (NAB) lost another 2.1% to $32.32 and Commonwealth Bank (CBA) down 1.3% to $80.54. As mentioned to subscribers via live alerts, we had purchased a portion of a bank as it has reached our buy target for accumulation.• The Iron Ore sector slid, Fortescue Metals (FMG) bleeding heavily and losing 6.2% to $2.28. We remain traders of this sector, not investors and have no interest at present.• In the Consumer Discretionary space, Metcash (MTS) disappointed investors by announcing a write down of $640m. MTS closed 24.5c lower (-17.7) at $1.14.• Transportation Company, Qube Holdings (QUB), lost 7.6% to $2.56 after announcing to its investors that trading conditions remain challenging for the next financial year ahead.• A domino effect is now being witnessed in the financial services sector after the collapse of broking firm, BBY Ltd last month. Financial Services Software Company, GBST Holdings (GBT) announced that it is currently impacted by BBY being placed into administration as it is owed ~$640million for the services provided.
MarketMatters traditional morning reports should be back on track tomorrow, sorry for the hiccup, plus we are excited to announce some new additions to the team very shortly.
• The ASX continued on its slippery slope today, with heavy selling from the futures causing the Index to close down 52 points (-0.9%) to 5,553.• Pressure from the Banking sector also contributed to most of the broader market’s weakness. Commonwealth Bank (CBA) lost 1.7% to $81.57 (down 4.1% for the week!).• The resource sector outperformed, however. RIO Tinto (RIO) rallied 1.8% to $57.50 and Fortescue Metals (FMG) up 2.1% at $2.43.• The Australian Gross Domestic Product (GDP) figures came out at 11.30am and were slightly better than expected. Consensus was for +0.7% QOQ growth, but was released as +0.9%. Even these slightly better figures were of no help in today’s weakness.
After writing my report on Saturday and mentioning that interest rates were leading local equities I thought the obvious next step was to look more closely at the position of Australian bonds. I spent nearly 3 years trading just the 3 and 10-year bonds in the early 90’s, to put food on the table, as I embarked on my “Trading Career” in a small office at McMahons Point, Sydney. One of the factors I liked very much about trading both the Australian, and overseas, bond markets was they often yielded excellent risk / reward trading opportunities. After looking at a number of our bond markets this morning my opinion of the stock markets current position has clarified slightly.
Really bullish, there's more to go in the reflation rally
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