Australian Investment Blog

Subscribers questions

Markets are currently unfolding as we have been forecasting, so it's important that subscribers fully understand our views over the coming months, which we believe will provide some very good opportunities. We are enjoying a great response to our Monday morning questions section, so please keep them coming so we all understand how the markets are unfolding and can enjoy the volatility ahead, plus importantly not be caught napping when the music stops.

Question 1: "I am considering buying Northern Star NST given the recent pullback - is that a commendable move?" - Kind regards, Henk.

Answer: Morning Henk, as I'm sure you are aware we like the gold sector for the next few years, but a good entry level is clearly important after such a strong advance - NST has rallied over 100% in 2016.

We believe gold stocks should provide a good buying opportunity in coming weeks after Fridays strong employment report for the US, which has increased the possibility of an interest rate rise for the US in 2016. NST has already corrected 11% from its recent high and Fridays $US22/oz plunge in gold should see this pullback gain momentum.

We are currently targeting the "ABC" target area ~$4.20 to buy NST; we acknowledge this is a significant 20% lower but NST is a volatile stock, and the market is comfortably long which can be dangerous!

We are also likely to be looking at Regis Resources (RRL) and Newcrest Mining (NCM) if this correction in the gold sector unfolds.

Northern Star Resources (NST) Weekly Chart

Question 2: "I really like the new Q&A introduced for Mondays. In that vein, a question on the banks. The general view is that the market will increase, and it has (great!), but at some point, the market will turn, at which point the plan is to sell.

The banks are going up, but I was wondering if your Target prices for them are a little high. Do you expect CBA will reach $86 before the market turns? And ANZ $29? With the All Ords at 5500, CBA has just passed $76 and ANZ battling with $25: $86 and $29 seem a long way off. Assuming the same rate of increase, the All Ords would need to be at 6200.

Will you review the targets - or just see how it goes? ANZ, in particular, is quite unpopular at the moment." -Thank you, Jeff

Answer: Hi Jeff, like yourself most of our subscribers are watching the banking sector very closely, this Wednesday's important report from CBA is likely to determine the sectors relative performance over coming months -remember Suncorp's report which was a slight miss but okay and the market pushed the stock higher – this is a bullish sign.

We believe that the banking sector could be the "elephant in the room" for stocks for the balance of 2016. The market as a whole dislikes banks at present as they did Resources at Christmas and we've all seen the rally they have enjoyed over the last 7 months. We do not expect our local banks to surge to that degree but +10% bounce, if stocks remain firm, would not surprise us.

Regarding the index, if the banking sector rallies 10% the 5800 area is definitely on the cards for the ASX200.

On a value basis, banks are trading around fair value, BUT they are cheap compared to the overall market and their dividends are extremely tempting as interest rates continue to fall.

Our view will definitely remain fluid on the banks, like the market but we remain tentatively short term bullish as investors continue to search for value / yield with their record levels of cash holdings.

Technically the US banking sector is positive targeting ~16% further gains which is a good indicator for the local battered sector.

ASX200 Banking Index Monthly Chart



US S&P500 Banking Index Monthly Chart

Question 3: "Would you consider providing short selling recommendations for the thrill seekers out there? Short selling certain selective stocks could be an opportunity for out-performance going forward." - Simon

Answer: Hi Simon, the simple answer is definitely - for the traders who subscribe to MM. However, we do stress that this is an aggressive trading activity and not suited to most investors. Next year if we witness the inflection point we are targeting cash plus some gold stocks is likely to be the recipe for the majority of investors with traders having fun!

Question 4: "Hi MM Do you have any comments on the following stocks IMF SIQ SGF THANKING YOU IN ANTICIPATION." - PETER

Answer: Hi Peter, we will outline below a quick technical picture of these stocks that hopefully will help you, 2 out of 3 look good!

1. IMF Bentham Ltd (IMF) $1.64 - we are neutral around this $1.64 area.
2. Smart Group (SIQ) $7.05 - the stock remains bullish, you can buy under $7 with stops under $6.
3. SG Fleet (SGF) $4.37 - The stock is bullish as it breaks out to new highs, stops under $4.

Overnight Market Matters Wrap

• With a much better jobs report on Friday the US market’s finished very strongly, with the S&P500 closing in record territory, up 19 points (+0.9%) to 2,183, while the Dow finished just 80 points off its high, up 191 points (+1%) to 18,453.
• The big news of the day was the much better than expected jobs report of 255,000 new jobs added, compared to an expected 180,000. This will put the Fed under a bit of pressure regarding the timing of the next rate increase. Oil lost a little ground, dropping 13c (-0.3%) to US$41.80/bbl. Important to note that the number of oil rigs operating in the US has risen for six straight weeks.
• Gold was the big loser after the jobs number, dropping US$22.40 (-1.6%) to US$1,336.40 after the US$ rose.
• Today, Bendigo and Adelaide Bank (BEN) kicks off this week’s earnings, with expectations for FY NPAT of $434m and a dividend of 34cps
• The ASX 200 is expected to open higher this morning with the September SPI Futures indicating an open of 50 points higher, around the 5,548 level.

Regards,
The Market Matters Team
Level 12 28-34 O'Connell St
Sydney NSW 2000


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