It was an annoying week for stocks, with the S&P/ASX 200 index down about 95 points points to 5454.3. During the week, however, we saw a high of 5550.3, which raised my hopes that we might start sneaking towards my big call of 6000!
Let’s face it, when we were at 5550, we were 450 points away, only a measly 8%. Now I need a 10% rise to be a chance to crow by New Year’s Day!
Shane Oliver is still hanging on to his 5800 call and we did start the year at 5352. So at this stage, we’re up about 2%. With dividends and franking, we’re up about 7%, if your portfolio is as good as the index.
We’ve also had a good near-correction and bounce back, so dividend players could well be up over 10%. At this stage, my talking up of stocks, even if I miss the big 6000-call, has been a positive influence and better than term deposits.
But what could get me there? Try these: terrific economic data, technical positivity, European Central Bank talk turning into action, and less concerns over terror.
Overnight, the Yanks kept the economic story positive and convincing that the economic recovery is in train. US retail sales were up 0.3% in October, beating expectations, and the Thomson Reuters / University of Michigan preliminary sentiment index went to 89.4. This index hasn’t seen a number that strong since July 2007 and that’s when GFC meant nothing. The experts thought the number was going to be 87.5.
The story behind this keeps optimists like me positive, with the strong labour market, stocks at all-time highs and falling fuel prices making US consumers smile.
But it’s not just a data story keeping me a believer in higher stock prices – there’s an intriguing technical story too, which I want to “megaphone” to you.
Technical types say the Dow has been locked into a pattern that’s now been broken out of and it’s good news for stocks.
These techo guys point out that the monthly bar chart of the Dow from 1999 to 2007 and then to 1998 and back to 2009 creates the shape of a megaphone (see the chart below). “We would expect more gains to come now, as the top of that megaphone pattern (represented) very heavy resistance”, said Chris Kimble of Kimblechartingsolutions.com [1]. And a lot of smarties believe him.
I’m thinking the US will help the case for our index going higher but what else do we have on our side?
China is doing OK but not shooting the lights out. Japan’s economic data is better than it was a few months ago. The Aussie dollar looks like it’s defying gravity. While we need it to fall to help dollar-sensitive companies, a big fall could spook foreign investors, like it did a few weeks back and take stocks down.
I reckon we need a good story coming out of Europe, where the ECB and Mario Draghi do something convincing that really raises hopes that the monetary strategy looks something like the Yanks’ QE3 policy. We also need to see a believable solution to the Russia-Ukraine hostilities to give Europe a shot of positivity. Could Abbott’s possible shirt fronting of Vlad this weekend be the stimulus to solving the Ukraine problem?
What I liked this week
- The Euro zone economy expanded by 0.2% in the third quarter.
- Germany didn’t fall into recession and French growth actually beat forecasts. Italy is struggling but Greece has beaten a six-year recession!
- The Westpac consumer sentiment number showed female consumers are becoming more confident and women are more important for the economy, as they’re reactive spenders while men are tightwad, steady spenders.
- The oil price fall, which has now taken petrol prices down 8.4 cents a litre in two weeks. This will help consumers spend and improve business bottom lines.
- Chinese retail numbers were up 11.5%. This was the best in five months and we need spending Chinese.
- Rudi Filapek Vandyke giving me three health companies to consider – Nanosonics (NAN), Promedicus (PME) and Simavita (SVA). It was great listening to him spell these out on my TV show with his wonderful accent! (You can see the interview on www.switzer.com.au [2]).
- Sky’s political maestro – David Speers – is writing on Fridays for Switzer Daily at www.switzer.com.au [2]!
- Oh yeah, I nearly forgot – US Wharton School finance professor Jeremy Segal has the Dow up over 18,000 by year’s end and he has been on the money for five years!
What I didn’t like
- No newspaper giving the massive spike in business conditions in the NAB survey any real attention. The details are below but that was a huge jump and I can’t wait to see the next one!
- Iron ore prices!
One last point
On my Super Show on 2GB, a listener was surprised about my positive view on the economy and how it was good for a lot of young people. He argued how cheap homes were in the 1980s compared to now. So I did a quick comparison of the 80s to now and it looked like this:
Unemployment headed towards 10% by the 1990s, interest rates got to 17%, the dollar fell to 50 US cents, cars didn’t have air conditioning unless you were lucky, clothes were expensive (who had a suit?) and you had to mortgage your granny to fly overseas! And we’ve gone 23 years without a recession! Sure, housing is dearer but there’s a hell of a lot of things that are miles cheaper. And how often did you go out for dinner? And how many café lattes did you drink then? Times are pretty damn good if you stop whingeing and just enjoy.
Top stocks – how they fared
The week in review (click the blue text to read more):
- This week I told you [3] how to make money using our very own Charlie Aitken!
- JB Hi-Fi, Super Retail Group, and Dick Smith are some of the best retail stocks [4] to buy before Christmas.
- Beach Energy and Crown Resorts [5] were upgraded, and CSR was downgraded. Bluescope Steel and Treasury Wine Estates were also in the good books. [6]
- Centuria Capital’s A-REIT fund, offering an 8.25% yield [7], looks attractive to Paul Rickard.
- Aristocrat Leisure, Ansell and Brambles were three stocks Geoff Wilson [8] says are good buys now that QE3 has ended.
- Charlie Aitken [9] thinks Myer is old news and Wesfarmers is where it’s at for retail.
- And we challenged a critical subscriber to show us the details of his own SMSF! [10]
What moved the market (click the blue text to read more):
- The NAB business confidence index rose from 1 point to 13 points in October and stands at its best reading in 6.5 years [11]. October also recorded the biggest lift in business conditions in 16 years!
- The Westpac consumer sentiment reading rose by 1.9% in November [12] to 96.6, up from 94.8 in October.
- And China’s retail sales rose at an annual rate of 11.5% [13] in October.
The week ahead:
Australia
Monday November 17 – Motor Vehicle Sales (October)
Tuesday November 18 – Roy Morgan Weekly Consumer Sentiment
Tuesday November 18 – Reserve Bank Board Minutes
Tuesday November 18 – Speech by Reserve Bank Governor Stevens
Friday November 21 – Speech by Alex Heath, head of the RBA’s economic analysis department
Overseas
Monday November 17 – US Empire Manufacturing Index (November)
Monday November 17 – US Industrial production (October)
Tuesday November 18 – US Producer prices (October)
Tuesday November 18 – US NAHB Housing Market Index (November)
Wednesday November 19 – US Housing Starts (October)
Wednesday November 19 – US Building Permits (October)
Thursday November 20 – US, Europe, China “flash” manufacturing
Thursday November 20 – US FOMC minutes
Thursday November 20 – US Consumer Prices (October)
Thursday November 20 – US Existing Home Sales (October)
Thursday November 20 – US Leading index (October)
It’s a week of RBA comings and goings next week – and little else – on our economic calendar. I think it will be another groundhog day with the Reserve Bank Board Minutes released on Tuesday, but investors and analysts will still be carefully reading its details.
And from one quiet week to a much busier one, the US has loads of top-shelf economic data in the pipeline. The influential US Empire Manufacturing index is among the more important ones, along with data on US industrial production, while the latest minutes of the FOMC meeting will take the spotlight on Thursday.
Calls of the week (click the blue text to read more):
- Gail Kelly is drawing the curtain on seven years as Westpac CEO, after announcing her retirement [14]. She will be succeeded in Feb 2015 by Brian Hartzer, the chief executive of Westpac’s Australian Financial Services division.
- In this week’s Palmer United Party drama [15], leader Clive Palmer expelled Jackie Lambie’s chief of staff, Rob Messenger, after accusing her of being his ‘mouthpiece’ for false and misleading comments. (By the way, if you’re interested, Annabel Crabb will show us what Clive Palmer likes for dinner when he’s interviewed on Kitchen Cabinet, which airs on Dec 2).
- In Thursday’s Switzer Super Report, Australian Agricultural Company and Monash IVF were promoted to Tony Featherstone’s takeover target list [16].
- And finally, when even the IMF managing director, Christine Lagarde, says Australian houses are expensive, they probably are. ABC radio reported that she entertained the thought of buying a holiday home in Australia, until she saw the prices!
Food for thought
When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.
Confucius – renowned Chinese teacher and philosopher
Last week’s TV roundup
- Internationally acclaimed economist and former RBA board member, Professor Warwick McKibbin [17], shared his insights on the housing market, the big four banks, and much more!
- She was recently named the Telstra NSW Business Woman of the Year, but her day job is running Mirvac, so what does Susan Lloyd Hurwitz [18] think lies ahead for the property market?
- The financial services industry is increasingly required to meet the special needs of its SMSF customers. Supercorp CEO, Kurt Groeneveld [19], visited Super TV to talk about how they are responding to some of these challenges.
- And health stocks have had a stellar run in 2014, but will they keep delivering? To run his stethoscope over the companies with the healthiest balance sheets, I spoke with FN Arena’s Rudi Filapek-Vandyck. [20]
Stocks shorted
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table also shows how this has changed, compared to the week before.
This week, the biggest mover was Kingsgate Consolidated, who had its position sold short increase by 0.85% to 10.64%.
Source: ASIC
My favourite charts:
Geez I hope this is right!
Source: NAB Monthly Business Survey
NAB business conditions surprised this week with some huge results, but unfortunately this good news is often ignored. At 12.7 points in October, this is the biggest lift since April 1998 – that’s 16 years!
Top five most clicked on stories
- Peter Switzer: How to USE Charlie Aitken to make money [3]
- James Dunn: The best retail stocks to buy before Christmas [4]
- Charlie Aitken: Murphy’s Law, retail and Wesfarmers [9]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [5]
- Paul Rickard: 8.25% yield makes this REIT look attractive [7]
Recent Switzer Super Reports
- Thursday, 13 November, 2014: Murphy’s Law [21]
- Monday, 10 November, 2014: The right approach [22]