Resources drag as market hits four month high
What Mattered Today
Another solid session for the ASX with the index closing at its highest level in the last 4 months - yesterday’s tepid pullback a distant memory…Banks were reasonable, some of the industrials copped a decent bid tone, Healthcare rallied +1.13% HOWEVER resources were the weakest link, losing -0.19% as a sector. BHP was off -1.23%, RIO fell -0.47% despite higher Iron Ore prices overnight and Fortescue Metals (FMG) dipped -1.56%. Some have now turned very positive commodities and if you look at broker upgrades to commodity price decks you can see why. The main guys, BHP, RIO, FMG etc are all cum upgrade in the coming months given the mkt was too bearish in terms of their underlying commodity price forecasts – the latest to upgrade their deck was Morgan Stanley yesterday, however the issue here is that we’re all expecting these upgrades. I spend 10 hours a day listening to a bunch of guys talk about the market, they in turn are talking to others and so on and so forth. ‘Resources are cum-upgrade’ has been the overwhelming rhetoric which is probably spot on, but markets / stocks rarely react to the known knowns. Resource upgrades are a known known.
We once again use Whitehaven Coal (WHC) as our proxy for the broader space, and it was down -4.45% today to close at $2.79 – a very long way from the sub 40c mark at this year’s lows but extremely susceptible to further downside from current levels…here is a table of the other main commodity coys we look at and their price movements year to date + their move lower from their recent highs. No one now talking about GOLD and everyone talking IRON ORE & OIL...!!!
Source; Bloomberg
Elsewhere, Tatts (TTS) did well, closing up +8.45% after a Macquarie led consortium came to the party with a new deal that could scuttle it’s proposed merger with Tabcorp (TAH) – always good to have some competitive tension around the market! The MQG bid is worth something between $4.40 / $5.00 share while Tabcorp’s at $4.34 – Game on it would seem for the lottery business!
Tatts (TAH) Daily Chart
On the flip side, Bellamy’s (BAL) went from a trading halt into voluntary suspension – obviously having issues around disclosure to the market – essentially they need more time to get their story straight. A company can only ask for a voluntary suspension if it is unable to meet its continuous disclosure obligations to the ASX, or if it's not in a position to make an announcement after a trading halt. Not good news for BAL in all likelihood
We’ve got a shorter term position in Vita Group (VTG) which is starting to look reasonable. We bought last week at $2.65 and it’s a good example of the stocks that we think should do well into the back end of the month, and early in 2017. Focus on the areas that have struggled or been hit for short term reasons – the stock closed today at $2.97, we’ve got a ~$3.50 target
Vita Group (VTG) Daily Chart
We had a range today of +/- 50 points, a high of 5595, a low of 5545 and a close of 5584, up +39pts or +0.71%.
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