Author: james Carter
• The market was summarily dumped today, falling on the back of BHP Billiton (BHP) – $2.36 (7.26%) $30.13, spinning off South 32 (S32) last @ $2.05, Macquarie Bank (MQG) going ex. dividend $2.00 but was – $3.04 (3.68), and the four major banks again being sold down. The ASX 200 Index was down 76 points (1.33%) to 5659.• Since its high in March, the Financial Index has fallen ~12% in a matter of weeks. With the weakness, our banks are starting to look good value. As per the recent Hickman Report, keep an eye open for trade alerts as Shawn looks to accumulate at least a third of his previous bank positons towards our targeted levels.• The four major banks finished down with ANZ Bank (ANZ) down 84c (2.54%) to $32.28, Commonwealth Bank (CBA) down $1.75 (2.06%) to $83.00, National Australia Bank (NAB) down 52c (1.51%) to $34.00 and Westpac Bank (WBC) down 83c (2.51%) to $32.22.• Although the ‘Telco’ sector closed in the red, it was the best of the bad lot! Vocus (VOC) ended 1.2% lower at $5.84 after the vote to takeover Amcom (AMM) had been adjourned. Shawn still holds interest in VOC.
Yesterday, Resmed (RMD) shares fell 18.4% after some damning evidence that one of its devices increased the chance of death for patients on trial – chart 1. RMD were trying to see if its adaptive servo-ventilation (ASV) therapy, could aid people with chronic heart failure and sleep apnea. However, the study found that the therapy increased the risk of mortality by 2.5%. The short term hit to revenue is relatively small, but it does set back, at best, a promising growth option as RMD were looking to play a role in the treatment of heart failure which costs the US government ~$US35bn annually.
• A very lacklustre Australian Market today saw the ASX 200 Index finish up 39 points (+0.7%) to 5736, reversing yesterday’s loss and ending the week up 1.8%.• As mentioned yesterday, Vocus (VOC) sold its strategic stake in Amcom (AMM). VOC surprisingly sold off, down 2.5% to $5.91. Shawn maintains his position in VOC and will continue to assess his portfolio on a daily basis.• Today was the last day of trading in BHP Billiton (BHP) to be entitled to South 32 (S32). BHP reversed most of its losses from last week, rallying 3.8% higher to $32.49 for the week.• The junior supermarket, Metcash (MTS) rallied 12.1% to $1.44, surprising ‘short sellers’ of this stock, after announcing that it intends to float its Automotive division to help pay down its debt. Metcash has found life difficult to compete in the sector, with the already struggling Woolworths (WOW) and Wesfarmers (WES).• The Hickman Report will be available tomorrow afternoon as usual.
I apologise for the delayed report today due to circumstances beyond our control.
• The Australian turned in on itself today, showing yet again what was wanted yesterday, is not necessarily wanted today. The ASX finished down 19 points (-0.3%) to 5696, with weakness in the Materials and Health Sectors.• Resmed (RMD) surely took a hit, following its tumble in US trade, ending $1.52 lower (-18.4%) at $6.73.• The Materials was one of the worst sectors with BHP Billiton (BHP) down 53c (-1.6%) to $31.97, RIO Tinto (RIO) down $1.32 (-2.2%) to $57.70. Fortescue Metal (FMG) fell a hefty 8% to $2.31.• The Retail Sector was weaker with individual stocks having a mixed day. One of yesterday’s favourites, Myer (MYR) was down 2.6% to $1.515, but JB Hi-Fi (JBH) managed to finish better, up 16c (0.8%) to $21.06. The question will be whether yesterday’s improvement was just a Budget Day wonder or not.• Drought conditions in areas of Queensland saw Grain Corp (GNC) farms and lower export in grains led its stock to close 25c (-2.5%) lower at $9.86. Some analysts are now starting to factor a drop in production should the weather continue to worsen.• Qantas (QAN) had another high flying day (excuse the pun), with the stock well sort after with further analysis of their results showing they should beat expectations for the full year. The stock finished up 10c (2.8%) to $3.68.
Stock markets hate uncertainty, almost more than bad news and over the last 24 hours, some two potential concerns have been removed from the minds of investors/traders. For me, it will become a classic “Today’s news is tomorrow’s fish & chip paper.”
• Further buying was extended in the broader market today. The ASX200 closed 40 points higher (0.7%) at 5715, mostly let by the financial and consumer discretionary sector.• The Retail Sector rally was mostly due to investors interpretation of last night’s Federal Budget, along with Myer (MYR) reporting its quarterly sales slightly above consensus this morning. MYR rallied 10.3% higher at $1.555. It comes with no surprise if “short covering” was experienced in this stock today, with ~20% of its shares on issue reported to be short sold.• Commonwealth Bank (CBA) continues to retrieve some of its losses from last week, ending its day 1.3% higher at$83.98. Westpac (WBC) also outperformed, it closed 79c lower to $33.27, but note it traded ex-dividend for the amount of 93c a share.• The Precious metal sector, Gold outperformed as anticipated, Newcrest (NCM) rallied 2.8% to $14.28.
Last night just after midday in Chicago, around $US100m worth of VIX options were purchased in about 1 second. That is the equivalent to 50% of the average daily turnover. The unusually large purchase was a hedge, or a bet that volatility will rise in coming months in US equities. Volatility usually rises when equities fall e.g. last night the VIX rallied 7.7% as the Dow fell 86 points.
• Buying returned today, as investors saw some value around the lower levels of 5600 in the ASX 200, having ended 50 points higher (+0.9%) to 5675.• The financial sector reversed some of its recent downfall; Macquarie Group (MQG) closed 2.5% higher at $80.75, Commonwealth Bank up 0.9% at $82.88, while National Australia Bank (NAB) only closed at $34.54 after completing its equity raising and trading ex. rights.• The Resource sector continued to outperform after another good rise in Iron Ore last night, and contributed to the overall strength in the ASX200 – BHP ended 2.2% higher at $32.53 and RIO up 1.1% at $59.25.• Plenty of activity continues to be witnessed in the “Telco” space, Telstra (TLS) rallied 1% higher at $6.11, whilst Teoh, a founder of TPG Telecom (TPM) increased its strategic stake in Amcom (AMM) to 19.9%, forecasted to be taken over by Vocus (VOC) should its shareholders vote in favour for the acquisition.• The world’s largest supplier of mining explosives, Orica (ORI) rallied 3.5% to $20.89 despite downgrading its earnings guidance and a possibility of reducing its ammonium nitrate supply.• Qantas (QAN) soared 7.2% higher at $3.56 after it announced a potential capital return to its investors this year, having been on track to reduce its debt by $1B by FY15.
On the weekend, China dropped their interest rates by 0.25% for the third reduction in 6 months. China’s economy is struggling with growing debt and tumbling property prices. There are now around 30 Central Banks globally attempting to stimulate their economies into healthier shape. Various levels/forms of economic stimulus have been occurring since the GFC in 2007/08 with only the US showing signs of improvement and that is still not convincing.
Really bullish, there's more to go in the reflation rally
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