Market Matters Afternoon Report Tuesday 26th July 2016

Afternoon Report 26/07/2016

Market Matters Afternoon Report Tuesday 26th July 2016

Good Afternoon everyone

Market Data

What Mattered Today

We’ve been fairly bullish in our morning's notes of late calling higher prices for stocks over the coming months. The reasons are many and have been detailed to subscribers, however, it’s price action like we saw today that warms the heart. A pullback, some profit taking, consolidation or whatever you want to call it looked likely today, with the market struggling in the morning session – selling off almost 40pts.

Overseas markets pulled back overnight following a very solid run, we have some big data points coming up later in the week and the heavy-weight sector – being the banks, are trading up at the top of their range – all signs for some form of cool off.

Not to be with the index shaking off early weakness with a range of +/-39pts. 5498 low, 5537 high and a close at 5537; up +4pts or +0.07%. Not a big move in aggregate, however, it was the buying of weakness that is most encouraging….

Woolworths (WOW) settled after yesterday’s +8% rally – off -3.29% today to close at $23.50. Seems analysts on the whole still think the turnaround has some way to go – which is interesting. When the vast majority are negative a stock, when shorts are high, as they are with Woolies (7% of issued capital) the chances for a strong bounce in share price on ‘less bad’ news is high.

Goldman Sachs say….More restructuring charges but early signs of stabilisation – Neutral call retained a price target stuck at $21.50!!
Macquarie headed their research piece with Are we there yet? Concluding no retaining their underperform call and $24.30 target price
Deutsche thinks that the operating model review and FY16 EBIT guidance is positive however it’s still too early for them to take a more positive stance – retained a HOLD
UBS posted the Q of; Is WOW nearing the bottom? Risks still exist in our view. Guidance in-line with UBS and they retained their Sell recommendation
Credit Suisse agreed with the strategy, but don't see the level of performance improvement needed to justify a valuation upgrade. Retain a neutral stance with a $24.30 price target.

At MM, we’re looking for a level to get long on the expectation that the WOW management team of Brad Banducci – Gordan Cairns is entering a period of under promising / over delivering. It’s the only way to build back the market’s trust...

Woolworths (WOW) Daily Chart

Suncorp (SUN) – we like it, we remain comfortable holders of the stock and we see higher prices in the coming months. Suncorp is cheap relative others in the sector, weighed by fears around its banking operation. We feel those are overblown. The stock put on +1.76% today to close at $13.32

Suncorp Group (SUN) Daily Chart

Telstra (TLS) has traded up to the top of its trading range and we’d be sellers of the stock above $5.80. Its competitive position around network coverage is being eaten away and inevitably, margins with come under pressure.

Telstra (TLS) Daily Chart

…Here’s a look at current pricing under the NBN world – TLS extremely high & uncompetitive….we once again have Vocus (VOC) in the MM portfolio after buying the most recent pullback.

Source; Shaw and Partners

We talked about buying pullbacks in this morning’s note and set out the structures we look for highlighting Whitehaven Coal (WHC), Newcrest (NCM) and South 32 (S32) as examples. It’s becoming a fairly common pattern in the market, particularly in the resource sector of late however not all pullbacks are the same.

Fortescue Metals (FMG) is a good example here. It’s rallied strongly, pulled back 47c from the high and looks reasonable, however, the prior pullbacks have been 89c and 84c – thus 47c seems small. Furthermore, we’re not seeing an ABC style retracement so for now, we stand to the side. Look for a short term bounce in Fortescue Metals (FMG) from current levels followed by a lower high, lower low structure before the stocks looks appealing again.

Fortescue Metals (FMG) Daily Chart

Sectors

Source; Bloomberg

ASX 200 Movers

Select Economic Data; Stuff that really Matters in Green

Aussie inflation (CPI) on Wednesday the main talking point locally given it’s bearing on interest rate policy. As of today, the market is pricing a 70% chance for a cut at the August meeting. CPI expectations are for 0.4% qoq – a number below that will probably seal the deal for an August cut of 25bp – and given the mkt is currently ascribing a 70% chance, (30% probability of not) then the AUD will drop sharply on a number below 0.4%.

A fair amount of data from Japan later in the week as well with the Bank of Japan (BOJ) meeting happening Friday afternoon. Look for more rhetoric around easing measures.

What Matters Overseas

…the POST BREXIT rally in the UK stock market!!

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 26/07/2016. 5:00PM.

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