Volatility soars at ground level as the overall market steadies nicely (CYB, WEB, OZL)
The ASX200 has now recovered around half of its losses since our early January high and US stocks are trading within 6% of their all-time high, as we expected the recent volatility / yield tantrum is rapidly becoming a distant memory. Following decent gains by US stocks overnight we are set to challenge the important psychological 6000 level this morning
· Overall, we believe it’s just a matter of time before the local market punches through and heads towards fresh 2018 highs – our ASX200 target into March / April is ~6250.
Our view at the start of 2018 remains intact and will remain the core to our investment decisions until further notice:
1. Stocks would have a ”warning style” correction for a short-term buying opportunity in early 2018 – this obviously occurred and we bought aggressively.
2. Many global indices will make fresh all-time highs between now and April before its time to get off the stock market express and reassess.
Today’s report focuses on 3 of our stocks that have experienced large market swings over recent times to clarify our current thoughts on these holdings.
1 Webjet (WEB) $13.01
WEB soared over +16% yesterday following their half-year results which showed a +55% increase in transactional value (TTV). Importantly net profit came in +45% with the key driver being its Webeds segment. WEB has maintained its guidance of $3bn TTV value and we still feel it’s the best stock in the sector at current levels.
As of the 16th of this month WEB had a significant short-position of almost 7% which may underpin the stocks rally towards fresh all-time highs.
We are bullish WEB medium-term targeting the $13.50 area i.e. over +10% higher.
Webjet (WEB) Monthly Chart
2 OZ Minerals (OZL) $9.39
OZL enjoyed a solid day yesterday rallying over 5% following its simply excellent profit report on all levels spearheaded by a 72% surge in profits to the best level since 2011. Also, the dividend came in well above analysts’ estimates and the copper / gold miner is now yielding ~2.1% pa fully franked. The market had been concerned about future growth for Oz Minerals given the shorter life span of their Prominent Hill mine, however after being on the conference call yesterday, I’m confident that Prominent Hill can be extended, and Carapateena will provide a very good runway for future growth.
We remain bullish OZL targeting a break of $10 while the stock can hold above $9.30.
OZ Minerals (OZL) Daily Chart
The Australian resources sector is highly correlated to the Emerging Markets Index (EEM) which is arguably our favourite market at this point in time. While we expect further consolidation of the coming weeks we are overall bullish targeting ~10% further gains over coming months.
This supports our bullish view on OZL plus our other holdings within the sector.
Emerging Markets (EEM) Weekly Chart
3 CYBG (CYB) $5.20
CYB has corrected sharply from its late 2017 high, a pullback of almost 14% and we’ve seen some reasonable profits in our Growth Portfolio become losses – never a nice taste! The question is clearly what now?
Our feeling is BREXIT will sort itself out and will become just like many “economic disasters” and eventual outcome being ‘not too bad’. Rising interest rates in the UK will help CYB plus of course it’s an overseas earner which we like at MM. European stocks have underperformed during the recent “bounce” in global equities but we believe they will play some catch up over March / April.
We thought the companies trading update was ok earlier in the week but the market has clearly focused on the negative i.e. a slight fall in net interest margin. Importantly we feel the bank is cheap trading on a price to book value of less than 1x with a significant amount of costs to come out of the business.
Technically the stock looks great value around the $5.15 region and we are tempted to increase our holding.
CYBG (CYB) Weekly Chart
Conclusion (s)
No major change, at this stage we are comfortable with our short-term bullish call targeting new all-time highs from a number of global indices in the next few months.
On the stock level we continue to like WEB and OZL targeting higher prices while we are considering averaging CYB under $5.20.
*Watch for alerts.
Global Indices
US Stocks
Our target area for the recent aggressive weakness by US stocks was reached and to-date has been rejected strongly. Assuming over the next few days / weeks the S&P500 can trade around current levels in a calmer fashion a test of all-time highs looks a strong possibility.
US S&P500 Weekly Chart
European Stocks
No major change we are now targeting around the 14,000-area for the German DAX before we will turn bearish i.e. a rally from here of over 10%! However, at this stage European equities have not embraced the global “bounce” by stocks but we believe they will moving forward.
German DAX Weekly Chart
Asian Stocks
Similarly, to western global indices the Hang Seng corrected over 10% and looks good from a risk / reward perspective under 30,000.
The more time the market can spend between 31,000 and 32,000 the stronger it will become.
Hang Seng Weekly Chart
Overnight Market Matters Wrap
· The SPI is up circa 0.7% as the DJIA added 0.7% while the S&P 500 and NASDAQ were close to flat.
· Asian and European stocks were mostly lower after the Fed yesterday released minutes of their recent meeting which indicated tighter monetary policy.
· The US jobs market continues to strengthen as the number of people applying for unemployment benefits fell to a 45 year low.
· Most metals on the LME were weaker apart from copper, while iron resumed trading in China a touch lower and oil rallied 1%.
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.
Disclaimer
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 23/02/2018. 9:15AM
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