Australian Investment Blog

The ASX200 again retreated yesterday and is now feeling distinctly heavy, after 4 disappointing days we find ourselves back below the psychological 6300 area. The recent characteristic of heavy selling via the SPI futures early in the day followed by range trading from around 11.30am in my experience has often been how overseas fund managers sell our market.

Yesterday’s decline was led by the banking and energy sectors, while a few recently weak stocks enjoyed some selling reprieve but the market tone was very poor. At MM we have been eyeing a few stocks to buy into weakness but we are comfortable at this point in time with our relatively conservative stance in the MM Growth Portfolio i.e. we are currently holding:

• 18% cash, 3% in $US via an ETF, 10% bearish equity ETF’s (with half being leveraged) and only 69% in equities.

At 2.30pm the RBA left the cash rate glued to the 1.5% level, Australians holding debt have now enjoyed this lowest rate in history for an astonishing 25-months. Money markets are now looking towards the next decade before the RBA will consider raising rates with the $A suffering accordingly. We actually felt the RBA attempting to “talk up” our economy felt a touch desperate, or at least very optimistic – perhaps they have some “insight” into today’s growth (GDP) figures.

· We remain neutral the ASX200 but still in very cautious “sell mode”.

Overnight stocks were weak but they bounced fairly well from their lows, as we mentioned in the Weekend Report the US market feels to us like its enjoying an almost bond like “safety bid”. The SPI futures are calling our market down around 10-points early on with the damage likely to be experienced in the resources sector following falls in base metals led by copper -2.7% as it tests 14-month lows – the “Dr Copper” followers will be banging the looming recession drum hard this morning.

Today’s report is going to look at the 5 stocks on the ASX200 who moved by over 5% yesterday in case buy / sell opportunities are presenting themselves.

ASX200 Chart

Emerging Markets woes

The emerging markets continue to rattle investors with some poor economic news helping both the declines & negative sentiment in the groups currencies:

· South Africa’s economy has slipped into a recession sending the Rand down 2%.

· The Turkish Lira fell over 1% in a move that shows little confidence in their central bank.

· The Indonesian Rupiah fell to fresh decade lows.

MSCI Emerging Markets Currency Basket Chart

The 5 stocks on the move yesterday

In a weak market yesterday we saw 4 stocks rally by over 5% while one fell by -7.6%, we like to look at stocks who rally when markets fall hence the following look at these 5 movers.

1 Ausdrill Ltd (ASL) $1.72

Mining Services business ASL was the best performer yesterday rallying over +9% following news that the board have recommended shareholders vote to approve the Barminco acquisition which is apparently going to be earnings positive by around 30%.

However, the company has endured an awful year following some troubles earlier in the year at a few of its operations.

• MM is neutral ASL but wouldn’t be surprised to see an ongoing bounce towards $2 – one for the trader.

Ausdrill Ltd (ASL) Chart

2 Sims Metal (SGM) $13.19

Scrap metal business SGM rallied almost 7% yesterday although it’s a drop in the ocean compared the recent weakness.

Recently the shorts have been covering but it wasn’t a major position and today sits ~3% of shares on issue.

• MM is neutral SGM at present, albeit with a slightly positive bias.

Sims Metal (SGM) Chart

3 Evolution Mining (EVN) $2.84

EVN rallied +5.2% yesterday but it was a from a low base, we actually flagged the potential bounce in the chart pack recently.

• We are neutral EVN but further strength towards $3 would not surprise.

Evolution Mining (EVN) Chart

4 Speedcast International (SDA) $4.77

SDA rallied over 5% yesterday but its not been a fun time for SDA with the stock down 30% from last month’s high – a downgrade will do that to growth stocks.

We did find it encouraging to see a number of SDA directors buy their own shares into the weakness although most got set between $4 and $4.50. and are hence now nicely in the money.

• We are neutral SDA but another one to watch for the traders.

Speedcast International (SDA) Chart

5 Whitehaven Coal (WHC) $2.83

WHC tumbled -7.6% yesterday but two thirds of this fall was due to the company trading ex-dividend 27c i.e. including a 13c special dividend.

Technically we are neutral / negative WHC targeting under $4.20.

• MM is neutral WHC at best and have no interest at current levels.

Whitehaven Coal (WHC) Chart

Conclusion

Interestingly all 4 stocks who rallied by over 5% yesterday have corrected noticeably in recent months and are showing no meaningful reason for MM to consider purchases – a couple may be interesting for the traders.

WHC coal which fell yesterday technically looks poor and we have no interest at current levels.

Unfortunately this morning was one of those days when you look at a few things but the result is far from exciting.

Overseas Indices

US stocks remain firm with the Russell 2000 needing to break under 1700 to generate technical sell signals i.e. around 2% lower.

US Russell 2000 Chart

The UK’s FTSE remains bearish targeting a further 5% decline unless it can close back above 7550.

UK FTSE Chart

Overnight Market Matters Wrap

· The US equity markets resumed their trading week to end marginally lower overnight.

· US President Trump’s threat to keep Canada out of any NAFTA agreement kept markets restrained. Talks will resume Wednesday US time. Meanwhile US manufacturing activity rose to a near 15 year high and the economy grew at 4.7% pa in the third quarter.

· Emerging markets are gaining more attention for all the wrong reasons. The Indonesian, Turkish and Argentinian currencies are being hammered and South Africa has entered recession territory. Metals on the LME were weak with most falling ~2%. Iron ore rose nearly 1%, while oil fell a touch.

· The September SPI Futures is indicating the ASX 200 to open 9 points lower towards the 6280 level this morning.

Have a great day!

James & the Market Matters Team

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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