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Last week again felt like tough going for the ASX200 as we slipped ~1% over the 5-days with some rotation back from value to growth stocks evident under the hood. Over the last few weeks the local market has failed to embrace the push to fresh all-time highs by most US indices leaving us neutral to negative over the coming weeks with another test of 6500 for the local index looking a strong possibility as the Banks and Resources Sectors surrender some of the 2021 gains i.e. now only 3% lower.
A soft session for local stocks although we did see a reasonable recovery from 11am onwards as buyers emerged into the early weakness. As we’ve written about recently, we’ve become more cautious on the market and because of that we’ve started to raise some cash in small but important steps. The international portfolios increased cash levels during the week while the emerging companies sits at 16%, however the Flagship Growth was pretty much fully committed to equities. Today we took 5% out of Alumina (AWC), largely a call around portfolio construction rather than a reflection on the stock itself and we may trim more depending how things transpire over the coming sessions.
We’re selling our 5% holding in Alumina (AWC) to increase cash as the market shows signs of wobbling.
The ASX200 is starting to feel very tired as it continually discounts apparent good news while embracing anything that feels vaguely off point. Local stocks are up only +2.4% year to-date compared to the S&P500 at +5.8% and it’s been weighed down by the heavyweight tech sector which has struggled as bond yields have rallied higher (both basis yesterday afternoon). The selling which drove stocks down yesterday was broad based and fairly unrelenting although not aggressive and outside of the Gold Sector there weren’t many bright areas – it felt to me like stocks were trying to 2nd guess how US stocks would digest the Feds rhetoric after a good night’s sleep, they were clearly nervous which has proved well founded given the Nasdaq’s ~3% decline.
A few cracks started to appear in the market today following March expiry this morning which corresponded with the high for the session around 10.30am, from then on it was all one way traffic with the index closing on its lows. Healthcare & Real-Estate gave back recent gains as 60% of the market closed in the red. The only bright spot being Gold with some of the smaller miners topping the boards, Silverlake Resources (SLR) the best of them up by 8% while Newcrest Mining (NCM) added +3.68% and now looks bullish, reiterating our view that we view Gold as having decent upside from current levels and are bullish the metal, the ETFs and the equities as shown through recent purchases.
The ASX200 continues to tread water around the 6800 area, yesterday saw over 70% of the market close in the red but in line with the recent lack of commitment the underlying index was unable to make a meaningful move away from the magnetic pull of 6800. The Fed is likely to awaken equities from their slumber following their comments this morning as Jerome Powell attempted to talk up the economic recovery while not unnerving markets that interest rates will rise in the near future – it feels akin to a gymnast balancing on a beam, this time we feel he should be ok but it’s becoming a tougher ask as each month goes by, especially as longer dated bond yields push higher.
A weak start to trade before buyers emerged into weakness, although a fairly lacklustre session overall. An upgrade of Telstra (TLS) saw that stock up 2% supporting the broader communications sector while Technology stocks also did okay in a relative sense. Materials and Energy the big drags on the market today as money continues to cycle out of the recently hot ‘reflation trade’, very much inline with our current views.
I reiterate MM believes the defensive stocks will outperform in the coming few months hence we have started aligning our portfolios accordingly e.g. yesterday in our Growth Portfolio we reduced our holding in Commonwealth Bank (CBA) and finally went long CSL Ltd (CSL) after a very long absence from the healthcare giant which makes up ~7% of the ASX200. However to be more precise we actually believe the markets due some reversion back towards yield sensitive stocks / sector illustrated perfectly by the IT stocks rallying almost 3% yesterday.
A strong (ish) session for stocks today with the ASX 200 finally breaking and holding above the 6800 level although it wasn’t that convincing. It took a couple of attempts this morning before sustained buying saw the market push through the key level which now sets up the technical picture at least for a quick ~200 point move on the upside, similar to the sort of pop higher that we mentioned this morning given short-term traders are probably sitting “short volatility” thinking the sideways ride will continue forever, the perfect backdrop for a squeeze, one if it does unfold subscribers know MM is keen to fade.
MM are making some tweaks to our Flagship Growth & Active Income Portfolios today
