Australian Investment Blog

Overnight the Dow has tumbled over 250-points / -1.0% led by Walmart whose on-line growth disappointed the market big time sending the goliath retailer down around 10% - a big negative impact on the Dow which is only made up of 30 stocks. However investors should not panic just yet as following 8 straight days of gains by the US S&P500, a pullback is to be expected. Locally the ASX200 is poised to open down around 30-points with a major negative influence coming from BHP which is set to open down near 6%, close to $29.50.

At MM we still believe the recent aggressive sell-off in stocks was the warning for what may come next as interest rates / bond yields rise, but if our preferred scenario unfolds a number of major global indices will still manage to make fresh all-time highs in the next few months before we should then then become negative – this would probably cause the most pain to investors which is a path the market often likes to tread.

However our concerns are rising when we look at the inversely correlated $US Index which has bounced strongly from the 88 area – we have been looking for a low in the $US Index around now and if we have already seen it, the picture becomes increasingly clouded for stocks from our analysis – something we at MM are watching very closely.

Today we are going to maintain our to focus on the local reporting season to search for potential opportunities and / or booby traps within some of the large swings we are witnessing in stocks as the market reacts to their respective reports.

Local Index

Yesterday’s the ASX200 was basically unchanged after yet again rallying for most of the day and closing near its high. Overall the local market looks constructive and when we bore into its solid advance from its recent panic lows, for the active trader we would be a buyer of any 60-point correction.

March Share Price Index (SPI) 60-mins Chart

ASX200 Daily Chart

US Stocks

As we touched on this morning a couple of points caught our attention from the US market last night / this morning:

1. The tech. loaded NASDAQ Index ignored the jitters elsewhere and closed marginally higher –we often say the NASDAQ is usually the “leading index”.
2. Walmart has fallen over 14% in the last few weeks with lack of growth in its online business the main issue.
3. The $US is threatening to rally from the 88 area which is likely to be negative for stocks and especially resources.

US NASDAQ Weekly Chart

Walmart (WMT) US $US Index Monthly Chart

One of MM’s main calls for 2018 was a major low by the $US early in the year followed by an 8-10% recovery, very much against the consensus view.

$US Index Weekly Chart

1 BHP Billiton (BHP) $31.30

BHP result last night was not its finest hour with an overall miss by ~5%, just what the stock is likely open down this morning, the question is do we buy it?

• The 55c dividend was a nice positive surprise but will be lost in the weight of negativity this morning – the stock is now yielding ~4% fully franked.
• Simply very large companies like BHP remind me of an oil tanker plodding along a course, but they take a while to turn around. BHP is a tanker heading in the correct direction albeit a touch slower than most of us hoped.

Overall we still like BHP and believe it remains in the “buy the dips” scenario but in both the Platinum and Income Portfolio’s we have a reasonable holding making the prudent action do nothing – sorry to be boring!

BHP Billiton (BHP) Weekly Chart

2 Super Retail Group (SUL) $7.03

SUL shares were dumped yesterday following its half-year results that missed the mark by a large degree, top line was okay however margins are being squeezed while the market is very sceptical of their purchase of Macpac – a New Zealand outdoor brand. Investors already have little faith in the stock which is down ~50% from its 2013 high.

• SUL is now yielding 6.6% fully franked and is trading on an undemanding valuation of ~13x.

We would consider SUL into further weakness, ideally under $6.

Super Retail Group (SUL) Monthly Chart

3 Altium (ALU) $18.88

The electronics design company ALU soared over 25% yesterday following its report which showed excellent growth with the top line up +30% to $US63.2m and dividend growth of almost 20% to 13c.
ALU is in a great space and it’s kicking goals within that market. MM can easily see ALU above $20 this year and more importantly we believe it will significantly outperform the ASX200.

However while ALU looks attractive , a huge amount of upside is now baked into the cake - we will reassess / consider into pullbacks.

Altium Ltd (ALU) Weekly Chart

Conclusion

We like the 3 stocks we covered today at various levels but cannot see ourselves purchasing any of them in the near future.

Global markets

US Indices

No major change from yesterday, overall US stocks are now in the area where we can see a low forming, if it hasn’t already, and our opinion is they will be higher in say 1-2 months’ time.

• While we expect US stocks to rally to fresh highs the likely manner of the advance is far more choppy / indecisive than the almost exponential gains we have witnessed from late 2016.

Similar to both 2010 and 2014 we believe that US stocks have given the market a relatively friendly warning over recent days – a nudge around what could be on the horizon. At this point in time I expect investors to slowly forget the recent volatility and refocus on all the bullish fundamental reasons to be in stocks ideally pushing global markets back up to fresh all-time highs before buying the next dip will become very dangerous. MM view from here:

1. Global markets are likely to regain their bullish euphoric mood through February / March and push prices back to all-time highs.
2. Following later in 2018/9 will be a ~20% correction back to the lows of 2016 i.e. hence our recent buying is relatively short-term in nature.

US Dow Jones Weekly Chart

European Stocks

European stocks made fresh recent lows this week as expected, our preferred scenario is now a rally back over 13,000 by the German DAX to fresh all-time highs in 2018 for an excellent selling opportunity.

German DAX Weekly Chart

Moving onto our close neighbours in Asia, the Hang Seng has bounced strongly from our “buy zone below the 30,000 area”, a few weeks consolidation would be an optimum outcome from here.

Hang Seng Weekly Chart

Overnight Market Matters Wrap

· The broader US equity market closed in negative territory, as the US Treasury on Tuesday sold $179 billion of securities as it works to rebuild its cash balance.

· On the US retail front, Walmart fell after a poor profit result, particularly in its online business. Investors focussed on its inability to keep pace with Amazon.

· BHP is likely to be the main focus to domestic investors today and is expected to underperform the broader market after ending its US session down an equivalent of 6.00% towards $29.53 area.

· The March SPI Futures indicating the ASX 200 to open 21 points lower towards the 5920 area this morning.

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

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