Author: james Carter
• Another quiet and choppy session was experienced by the ASX 200 today as was expected with both the US and UK markets closed tonight. The market jumped from the gates trading on its day’s high of 5733 around midday, only to lose some from the afternoon and close 57 points higher at 5722. Technically, the ASX200 has reached our short term target on the upside; from here we see good risk reward in the negative territory.• The banking sector finally trading positive supported the broader market; Westpac (WBC) closed 40c higher (+1.2%) at $32.96 and Commonwealth Bank (CBA) up 89c (+1.1%) at $84.00. As mentioned in the Hickman Report, we are happy to start and accumulate CBA back near the $81 area.• In the Merger & Acquisition (M&A) front, nickel and copper explorer, Independence Group (IGO) entered a takeover bid in Sirius Resources (SIR) via cash and shares. SIR closed 20.4% higher at $3.90.
One of the roles I enjoy the most in MarketMatters is answering questions / chatting with subscribers about the markets. The numbers of questions have increased dramatically over recent weeks as the Australian market corrected 7%, but the US market continues to make all-time highs. After these conversations, I felt it was important for me to clarify exactly where I foresee some of the major indices trading over coming months – at MarketMatters we believe in living and dying by the sword!
• It was a sombre session to end a volatile week. The ASX 200 closed only 2 points higher at 5665 after trading as high as 5692 early this morning.• The big 4 banks were a drag today, ANZ and CBA closed 0.5% lower at $32.05 and $83.11 respectively.• The gold sector continued its rally; Newcrest closed 2.3% higher at $14.31. Has the lustre returned to gold?• High end retailer, Oroton Group (ORL) opened its bags with a profit downgrade to its investors, sliding 13.3% lower to $2.22. ORL reached its technical support today around the $2.00 area and see some consolidation around here.• Cardno Ltd (CDD) lifted 19.1% today to $2.81 after an undisclosed buyer purchased a ~10% overnight. We have no interest in this stock.• The European Equity markets are expected to open higher in their session tonight, after reports of Greece being close to sealing deal with creditors.• Please watch out for the Hickman Report tomorrow.
China has backed the Brazilian iron ore giant, Vale by investing in massive ships that will transport the bulk commodity to North Asia. This investment on a state level from Premier Li Keqiang, in up to eight “Valemax” ships, plus loan of $US4bn to help fund an expansion, is a clear vote for the South American miner. Vale is looking to increase capacity by over 35% by 2018, putting added pressure on the iron ore price – see chart 1.
• A three-day losing streak was broken in the ASX200 today, ending 52 points higher (0.9%) at 5662.• The banking sector ex- National Australia Bank (NAB) had a solid session. CBA closed $1.07 higher (+1.3%) at $83.56 while NAB lost 0.5% at $33.38 most likely due to investors selling NAB and holding the granted NAB Rights.• Fortescue Metals (FMG) had also recovered some of this week’s losses, up 2.4% at $2.12, despite rating’s agency, Fitch downgrading the company’s outlook to negative. Hence, we are traders, not investors of the materials sector. BHP Billiton (BHP) had a better day, but on low volume. The price finished the day up 42c (1.46%) to $29.24, whilst it’s baby South 32 (S32) also had its lowest volume for the week, finished up 1c (0.42%) to $2.37.
US Housing Starts reach the highest level since 2007
• Volatility seems to be the norm for the past few days. The Australian Market had a choppy session, where the ASX 200 had a range of 51 points (high of 5625 and low of 5574), ending the day only 5 points lower at 5611. • The miners, ex-South32 (S32) underperformed the broader market. BHP ended 2.7% lower at $28.82, Fortescue Metals (FMG) -6.8% at $2.07 and RIO down 2.5% at $56.03, while S32 closed 1.3% higher at $2.36. • Following the selloff in Crude oil overnight, it is with no surprise that the energy sector slid further in negative territory. Santos (STO) was the weaker link of the sector, down 3.8% at $7.78. We remain bearish STO, anticipating a new low.• Cardno (CDD), an infrastructure and environmental services company slumped 27% lower to $2.50 after downgrading its profit guidance. CDD technically looks to slide further.
Should we be scarred of Property in Sydney and Melbourne?
• A volatile session was experienced in the Australian Market today. The ASX 200 had a range of 62 points, trading as high as 5673 and as low as 5611, before closing 44 points lower (0.8%) to 5616.• An aggressive sell off was witnessed early this morning, prior to the RBA minutes indicating it still has room to cut interest rates, reversing its day’s loss by midday. However, the rally was short lived and selling continued in the broader market.• The banking sector helped lead the broader market lower, National Australia Bank (NAB) being the main culprit, finishing its day 1% lower to $33.67.• The supermarkets continue to disappoint, Metcash lost 2.9% to $1.36, Wesfarmers (WES) down 1.8% to $43.71 and Woolworths (WOW) down 2.6% to $28.10. We remain bearish this sector as mentioned in yesterday’s report.• After the volatile day with BHP yesterday, the split stock South 32 (S32) picked up the pace today and finished the day up 13.7% at $2.33 as the ASX200 welcomes its new addition to its party (index). Meanwhile BHP continued to be sold off and finished the day 1.7% lower at $29.63, possibly due to reweighting by index tracking funds. • Bega Cheese (BGA) rolled down the hill by 4.1% to $4.67 after lowering its profit guidance this morning.
Back on 23rd October, I released a very negative and “lonely” report on Woolworths / Wesfarmers – Woolworths has since fallen 16.7% and 22.4% at its worst. My logic was simple, the stocks are trading on very rich P/E’s and no risks are being factored in to profitability from the improving discount rivals e.g. Aldi and Costco. We only have to look at the experiences of major UK retailers, Sainsbury’s and Tesco to understand how real these pricing threats can become – see charts 4 & 5.Since the last report, my wife has actually managed to drag me to Costco and I was impressed to see things are basically half price, so what becomes of Woolworths and Coles? I feel it’s relatively simple evolution from here, their brand recognition and store location will reign supreme once they become more price competitive and hence accept shrinking margins.However, what has caught my attention over the last week is how negative the market has now become on Woolworths and a recent analyst site visit led to comments around inefficiencies. Both theses points make me start looking at Woolworths for some potential value.
Really bullish, there's more to go in the reflation rally
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