Market Matters Morning Report Tuesday 12th July 2016

Morning Report 12/07/2016

Market Matters Morning Report Tuesday 12th July 2016

How bullish can equities become?

In the face of enormous negativity / volatility, we have been forecasting fresh all-time highs for US stocks for all of 2016 and we’re obviously pleased this was achieved last night. However, apart from the minority of subscribers that have investments in the US, this view does not create wealth unless it accurately translates into excellent forecasts for our local market / stocks. Moving forward, we remain short term bullish US stocks, ideally targeting at least the 2300 area in the S&P i.e. 7-8% higher.

Last night the UK's FTSE rallied 1.4% to enter a bull market, even after the BREXIT vote, advancing an impressive 21% since it's February lows. Another great example that markets generally prefer bad news to uncertainty! Over the same period, the ASX200 is +13% and the S&P500 +18% - hence some definite potential catch up from our domestic stocks.

US S&P500 Quarterly Chart

As we covered in yesterday's report, we are short term bullish the ASX200, targeting at least 5400 (probably this week) and likely higher in July - a break of 5270 will negate this positive view. The bigger question now is if US stocks have made new all-time highs and we believe US stocks can gain 7-8%, what about Australia – again, the poor cousin?

Let’s go back to yesterday’s report and apply the DOT Theory to 2016...the high for 2016 is 5427, a break of here will bring trend followers into the market, but unfortunately the annual range for the ASX200 has a huge standard deviation, unlike monthly ranges, making forecasting a target area from simple statistics pure guesswork.

Technically our "best guess" for the ASX200 is a test of the 5600 area i.e. at least another 5% higher in 2017.

ASX200 Weekly Chart

Last night, US Investment Bank Citigroup, came out with a very bullish prediction for raw materials including oil for 2017 - 6 months too late to be impressive, BUT very supportive of Australian stocks. This positive report made us cast our eyes over the Emerging Markets chart, to which the ASX200 is highly correlated.

Technically, the Emerging Markets Index is poised to rally strongly around 10%, if it can break over the 36 resistance area. An excellent indication that the ASX200 can enjoy a period of global out performance for the remainder of 2017 - not many pundits with this view at present.

Emerging Markets Index Weekly Chart

Summary

A simple and short report today but we believe with important context.
Remain long equities, do not sell too soon and maintain a short / medium term bullish view for the ASX200 while it is over 5270.
We are looking to sell into this anticipated strength, but definitely not yet.

Overnight Market Matters Wrap

The Dow and the broader S&P500 both finished at all-time highs last night, with the Dow closing up 80 points (+0.44%) to 18,227 and the S&P500 closing up 7 points (+0.3%) to 2,137.
Oil prices weakened last night following reports of higher Canadian supplies and a higher oil rig count in the USA. Crude finished down 65c (-1.4%) to US$44.76/bbl.
Gold also closed weaker, as investors seek out of the ‘safe haven’ assets and switch their risk buying hats on. Gold ended 0.8% lower at US$1335.35/oz.
The Iron Ore names are likely to outperform the broader market, with BHP in the US closing an equivalent of 1.1% higher at $19.82 from Australia’s previous close.
The September SPI Futures is indicating the ASX 200 to open stronger this morning, up 40 points to the 5,377 level.

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

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 12/07/2016. 9:00PM.

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