Is the May / June Correction Over?
Wow, we were way too tentative in yesterday’s Morning Report when we said:
“If the ASX200 can break over 5700 we believe it should target 5800 minimum fairly quickly.”
Literally a few hours after rallying through 5700 yesterday morning, the ASX200 closed up 94-points / 1.67% to enjoy its best day in 7-months, managing to close only 0.5% below 5800. The questions we now ask ourselves - is the seasonal correction over and are we off for another assault on the big psychological 6000 area?
Remember the 3 statistics we have been quoting recently:
1. The average correction for the ASX200 since the GFC is 6.9%, this year we have corrected only 5.5% to-date.
2. The ASX200’s range for June to-date is 5629 to 5793 i.e. 164-points. If the market which closed at 5772 today can break to fresh monthly highs, statistically the likelihood is we will test 5850 this month.
3. The average pullback for CBA over May/June since the GFC is just over 10% but this year we already have seen an 11.4% correction.
On balance, we believe the seasonal pullback is complete and the market is well positioned with July, the seasonally second strongest month of the year, only a few weeks away – we will maintain this positive stance while the ASX200 holds over 5690.
Overall, we are comfortable with our 10% cash holding as historically opportunities often present themselves as we approach the end of a financial year.
ASX200 Daily Chart
US Stocks
US stocks closed higher across the board last night, with the Dow both making and closing at all-time highs. At this point in time we are also net bullish the recently volatile NASDAQ with a target around the 6000 area i.e. 4% higher. However, after the recent 264-point / 4.5% correction we would anticipate price action similar to that between October and December 2016 i.e. a choppy ascent.
No change to our important line in the sand, unless the S&P500 closes below 2400 / 1.6% lower there are no sell signals.
US NASDAQ-100 Weekly Chart
Today we will look at arguably the 2 most influential market sectors within the ASX200, which include the ASX200’s 5 biggest companies which alone make up almost 30% of the market, before we even add the balance of the respective sectors. Clearly if these 2 sectors are aligned, it gives a solid indication for the overall direction of the broader ASX200.
The Financials
The local financials index has endured a pretty average May – June correcting 12.2% at its worst last week. However, over 2017/8 we remain bullish targeting a test of the pre-GFC highs for the sector, around 17% higher.
From a technical perspective if we do get the rally to the ~7500 region for the ASX200 Financial Index this will be an ideal time to significantly reduce our market / financials exposure.
ASX200 Financials Index Quarterly Chart
Suncorp (SUN) has been one of our favourite stocks since we established our largest market position back in 2015. We remain bullish, targeting the $16 area i.e. over 10% higher. In line with our comments on the overall financial sector, we do intend to realise profits when / if SUN reaches our target area.
Suncorp (SUN) Monthly Chart
The Resources
Not surprisingly following the large corrections in the many commodity markets, the leading Australian resource stocks have had a tough 2017 to-date e.g. iron ore has corrected -43.8%, crude oil -20.8% and copper -12.4%. However, we remain optimistic that the local resource stocks will eventually come back into favour and break their highs of early 2017 i.e. around +20% higher for BHP.
BHP Billiton (BHP) Weekly Chart
Conclusion(s)
We remain bullish the ASX200 over coming months still targeting a decent break over 6000 in 2017/8.
Overnight Market Matters Wrap
· A rebound in the US equities markets were realised overnight, ahead of the 2-day US Fed meeting tonight where there is a 97.8% consensus of a rate hike.
· Gold rose little, while oil resumed its game of snakes and ladders, rising 0.82% higher overnight.
· The Volatility (VIX) index remains in ultra-low level complacency, with risk remaining in a bullish stance.
· BHP is expected to continue its positive run after its US performance, adding 1.25% from Australia’s previous close.
· The June SPI Futures is indicating the ASX 200 to open 15 points higher, testing the 5790 level this morning.
Disclosure
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