Author: james Carter
• The ASX 200 closed 8 points lower at 5960 after trading as high as 5996 earlier in the day, unable to break above the 6,000 level again.• The Iron Ore sold off after weaker than expected China Economic Data released this afternoon along with a downgrade in Iron Ore by a major broker sent the sector in the red. RIO Tinto (RIO) closed 2.8% lower at $55.30 and BHP Billiton (BHP) closed 2.44% lower at $29.42. Fortescue Metals (FMG) outperformed the 2 majors, ending the day 2.2% lower at $1.775. This afternoon, subscribers received a trading alert in regards to rolling our Long Call position. **Note the Equity Options market closes at 4.20PM.• Junior Iron Ore player, Atlas Iron (AGO) remains suspended and has announced a suspension in its mining operations. The Domino effect has already begun – Transportation Company, Mcaleese (MCS) went into suspension from trade before market open in relation to its contract with AGO.• Seven Group Holdings (SVW) lost 5.6% to $6.91 as investors remain concerned with its industrial services subsidiary, WesTrac Group – Bad timing as Ryan Stokes was announced as the new CEO of SVW this morning, starting September 2015.• The Oil Sector outperformed Australia’s benchmark. Santos (STO) closed 1.6% higher at $7.64 and Oil Search (OSH) up 1.9% at $7.88. Subscribers also received a trading alert earlier today in regards to taking a profit in our call option trade.• Mergers and Acquisitions (M&A) continue to be the theme so far this year. Today, investors saw this in the telco sector. M2 Communications (MTU) to acquire New Zealand’s third largest internet service provider, Call Plus group for NZ$250m. MTU closed 10.7% higher at $11.55.
As most of you know, while I still see a little further upside in equities, I believe a 10-15% correction is looming for US equities – see chart 1. I am advocating slowly moving away from concentrated “yield chasing” portfolio, to a more diverse and growth orientated stance. This is a clear move away from my usual investment philosophy, which is similar to Mr Buffett’s, but with a potential decent correction looming, I prefer not to be with the crowd.
• The ASX 200 closed 36 points higher (+0.6) at 5968 and +1.2% for the week.• The financials and major supermarkets dominated the ASX200 today, Westpac (WBC) closed 0.9% higher at $39.88 and Woolworths (WOW) closed 1.8% higher at $29.56.• Today, we closed another ‘big 4’ bank position and switch to the REIT sector, locking in a good profit with excellent dividend as Shawn moves away from a high yielding portfolio to a growth portfolio.• Please watch out for the Hickman Report tomorrow.
Over the last month the ASX200 has rallied 2.4% but the insurance sector slipped 0.4%, this comes as the local bourse continues to be nerved by future margins. Insurance companies clearly carry an inherent risk by the nature of their business and when badly managed, as we have witnessed over recent years by QBE, can be a treacherous place to invest. Hence personally, I want to see real value before investing in this vulnerable sector. Overall I believe earnings risks to the sector are to the downside and stock prices are being supported by the almost panic chase for yield. Interestingly I have very different technical views on the main stocks in the sector:
• The ASX 200 continues to have a choppy session this week, today it traded as high as 5965 this morning, only to retreat and end 30 points lower at 5932.• The high yielding stocks underperformed the broader market, particularly with the ‘big 4’ banks. ANZ down 0.5% at $36.62 and Telstra (TLS) down 0.8% at $6.27.• The growth stocks are slowly gaining traction (see recent Hickman Report), Vocus (VOC) closed 3.1% higher at $6.09 and M2 Group (MTU) up 1.3% at $6.09.• With concerns of a price crisis in Iron Ore, and China reducing its tax to its domestic iron ore miners, BHP lost 1.8% to $30.19, Fortescue Metals (FMG) down 2.6% at $1.89 and RIO down 0.7% to $56.58. We reiterate, this sector is seen as a trading vehicle rather than an investment.• In the Energy Sector, Woodside (WPL) lost 2.7% to $34.13 as investors now see company as a situation stock rather than a yielding stock, as the overhang on if, or when will Royal Dutch Shell sell its ~13.6% stake after offering ~$94b for BG Group yesterday.
Yesterday, there were two pieces of significant news that hit the local equity market. Firstly, the RBA did not cut interest rates as anticipated, due to fears of an overheating Sydney property market. Secondly, Atlas Iron (AGO) went into voluntary suspension as it reviews its loss making operations. Notably this was the darling of the market in 2011, with a market capitalisation of over $3.5bn. Since then, the stock has fallen from over $4 to just 12c – see chart 1. The Iron Ore sector is getting battered on both the supply and demand side of the equation. Local heavyweights BHP and RIO are driving the price decline with massive increased supply e.g. BHP’s annual output has climbed from 144 million tonnes in 2011 to a forecast 245 million tonnes this year. Plus, as I have said previously lower world growth is inevitable due to ageing populations, led by Japan, implying no obvious improvement to the demand side of the equation in the long term.
• The ASX 200 edged 35 points higher at 5961 with the Energy and Iron Ore sector being the main drivers of today’s positive close.• The banking sector closed mixed, ANZ down 0.3% at $36.79 while the regional, Bank of Queensland (BOQ) closed 1.2% higher at $13.94. Today, subscribers received a trading alert, reducing Shawn’s position in one of the big 4 banks.• Fortescue Metals (FMG) snapped its 3-day losing streak, rallying 8.1% higher at $1.94 higher.• The Energy Sector rallied, with Santos (STO) up 4.4% at $7.41 and Woodside Petroleum (WPL) up 2% at $35.07.• The Retail Sector outperformed the broader market, Myer (MYR) rallied 8.8% at $1.425 after reports of Solomon Lew and private equity firms are said to be assessing the company for a bid.
Finger on the pulse as markets enter a critical phase
• The ASX 200 had a choppy day, trading as high as 5982 prior to the RBA’s surprise April interest rate announcement. Investors including ourselves incorrectly anticipated a rate cut this afternoon. However, the RBA loves to surprise and decided to leave rates unchanged at 2.25%, sending traders to sell their “long high yielding stocks” and close the ASX 200 only 27 points higher at 5926.• The banking sector had an incredible run ahead of the RBA meeting, with ANZ and WBC hitting their all-time highs at $37.25 and $40.07 respectively, NAB hit their 2015 highs at $39.62. Again, after the surprise RBA announcement of no change to interest rates, ANZ closed 23c higher (+0.6%) at $36.90, CBA down 19c (0.2%) at $94.21, NAB up 64c (+1.7%) at $39.33 and WBC up 21c (+0.5%) at $39.66. Subscribers received an alert on Shawn taking profit on one of the ‘big 4’.• The Iron Ore sector was closely watched today, after Atlas Iron (AGO) went into trading halt as it reviews its assets due to the falling commodity, Iron Ore. The ‘big players’, BHP and RIO however, rallied up 0.8% at $30.45 and 0.7% at $56.15 respectively. Fortescue Metals (FMG) however, suffered from this news, down 1.4% at $1.795 after being up early to $1.87.• The Gold sector rallied, as anticipated, with Newcrest (NCM) up 1.1% at $13.93 and Regis Resources (RRL) up 4.3% at $1.34.• The Oil sector also had a good day, Santos (STO) closed 2.2% higher at $7.10 and Oil Search (OSH) up 1.8% at $7.23. Subscribers also received an alert on a buy transaction on an oil sector.
Overnight Market Matters Wrap:• The US equity markets closed lower overnight. The DOW ended 78 points (-0.4%) lower at 17,698 and the S&P 500 down 8 points (-0.4%) at 2,059.• The weakness in the US was driven from its weaker economic data – US private employers reported a rise in jobs, well below expectations.• The commodities space continues to be the main event. Oil rallied 5.2% overnight at US$50.09/bb after US stock supplies were reported below consensus. On the downside, Iron Ore sold off, down 3.5% at US$49.53/t.• As Subscribers know, Shawn holds Fortescue Metals (FMG) via options and because of this, he is more flexible with the current share price, however we are closely watching this and will provide an alert should we close this position.• The ASX200 is expected to open 20 points higher this morning, around the 5,880 level.
Really bullish, there's more to go in the reflation rally
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