Market Matters Morning Report Monday 18th July 2016

Morning Report 18/07/2016

Market Matters Morning Report Monday 18th July 2016

Answering subscribers questions

Welcome to our second week of answering subscribers questions on a Monday, please keep them coming and we will enjoy answering, including the tough ones!

Question 1

"What is the DOT theory that you refer to in the Weekend report? I've seen it mentioned in reports a few times but have no idea what it is about. I've heard of DOW theory but not DOT theory. Can you tell me what it means? And are you going to have training on it and the methods you use to select stock?" - Meredith.

Answer - A great question because it's clearly important that subscribers understand the technical / statistical methodology that we combine with our fundamental overlay. The DOT Theory is a very simple and powerful tool, especially when combined with statistical ranges:

The Dot Theory : 80% of the time a market will make the high, or low, in the first 20% of any time frame.

This is best explained when we apply it to the ASX200 on a monthly basis, as we did in last Weekend's Report.

1. There are 31 days in July hence we should see the monthly high, or low, for July in the first 6 days (20% of 31) - 80% of the time.
2. The average monthly range for the ASX200 over the last 10 months is 363 points importantly, this has an extremely low standard deviation (or in other words, variance from the mean)
3. After making a high for July on the 5th at 5282 the ASX200 made a low on 6th of July at 5148 creating a monthly range for that time of 134 points, well under the average 363 points.
4. Last Monday when the market broke out over 5282 we combined two statistics to form a powerful conclusion. 5148 was the low for July (80% probability) and the market was then likely to rally towards 5500 i.e. average monthly range of 363 points on top of 5148 is 5511.

Importantly this tool is not as powerful if the market you looking at has a large variance / standard deviation in its statistical ranges.

Hopefully, this has clarified up our logic last week. We also do plan to add investing / trading education to subscribers in future.

ASX200 Daily Chart

Question 2

Three comprehensive questions from one subscriber Paul that we felt were relevant and topical – so we’ve covered all three.

1. When is MM going to resume Options trade recommendations?

Answer - The timing of this question is perfect considering our current view on the market.

We believe the current market advance from US stocks that is helping to drag the Australian market higher, will prove to be the end of the bull market from 2009. This advance as we have witnessed over recent months will be led by the lower quality / previously underperforming stocks. Hence the best way to invest in these moves will often be via options - keep watching!

Also, when we believe warning signals are ringing for the market we will be looking at puts / writing calls.

NB Options are suitable for sophisticated / knowledgeable investors only, or those who have a suitably qualified Adviser. If you are interested in learning more about options, or applying options over your portfolio, we can recommend a suitable broker/adviser to help with this.

S&P500 Monthly Chart

2. The Morning Reports often state that “MM are buyers” of specific stocks but they don’t send “Alerts” … very confusing. Would MM please be able to have a page on the website showing all Buy, Hold, Sell recommendations, not just the alerts, showing the date of the recommendation, the market price of the stock at the time of the recommendation and the current market price (to show whether the recommendation proved to be a good one)?

Answer - Another excellent question that a number of subscribers have raised in different forms. We believe one of our major points of difference is being transparent to subscribers and importantly, putting our money where our mouth is by investing in the recommendations we make as opposed to running a ‘theoretical model portfolio’.

Our alerts go out to subscribers when we are investing in the Market Matters portfolio, including the percentage weighting to our portfolio. At times, we also discuss stocks that we do not send alerts for, suggesting we are ‘buyers’ or ‘sellers’ of a particular stock. If an alert is not sent in the form of an SMS and email, these stocks are not being added to the MM portfolio. Put simply, reports would become very boring if we only discussed stocks where our funds were invested.

As it stands, we track the stocks we transact in but not all opinions or stocks raised in the reports - logistically it’s impossible and often very hard to accurately quantify. We will continue to track only the stocks we transact in. With regard to our past recommendations and performance, we firmly believe that disclosing these on the website is an important step forward for Market Matters. As we write, the preparations are being made for this to happen.

Finally, we want to stress the principles that we stand for, around transparency, honesty, integrity, and very importantly, alignment with our subscribers. We’re a unique report, we’re not a publication that publishes a long list of buy/hold/sell recommendations that are not acted upon. We present our view of the markets, and invest our money in a reasonably tight portfolio of stocks that we think expresses that view. We use a combination of technical, fundamental and macro analysis and our own personal experiences to do that.

3. There is nothing to show the performance of the MM Portfolio, it only shows current holdings, and it doesn’t show the amount invested in each stock. I’d like to see a running balance of its value (at the end of each week) so as I can see the rate at which the total value of the portfolio is going up or down. Also, I’d like to be able to see all past transactions, both buy and sell. When a stock disappears from the portfolio there is nothing to state the price that the stock was sold.

Answer - This obviously leads on from the question above - again, some very valid points. Firstly, all past investments will soon be listed on the website with a quick description of why these were sold from the portfolio. Furthermore, we will publish cumulative performance numbers based on open and closed positions plus dividends accrued. These figures will be shown in percentage terms to make them relevant for all subscribers.

Summary

Market Matters is a reasonably new report, that has experienced incredible growth over a short period. We will continue to improve/develop MM with the input from subscribers.
Importantly, we’ll stay true to our beliefs and will always strive to be unique and original.
Please keep the questions coming as we feel it’s an excellent way to improve our product offering.

Overnight Market Matters Wrap

The US markets closed mixed on Friday with the Dow closing up 10 points (+0.05% to 18,516, whilst the S&P500 finished weaker, down just 2 points (-0.09%) to 2,162.
News began filtering through late in the day’s trading of the attempted coup in Turkey and this added to the negativity. This news encouraged traders to buy oil and Crude finished up 27c (+0.6%) to US$45.95/bbl.
Gold surprisingly closed down US$5 (-0.4%) at US$1,327/oz. Weakness in the commodities space is expected, with diversified miner, BHP ending its US session to an equivalent of -$0.29 (-1.5%) to $20.08 from Australia’s previous close.
The ASX 200 is expected to open with little change this morning, at the 5.430 level as suggested by the September SPI futures.

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 18/07/2016. 9:00AM.

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