[table “169” not found /]
All good things come to an end but why wouldn’t the stock market head south with rational people called profit-takers out there? Since February 10, the S&P/ASX 200 index was up over 11% off its low of 4707. After beating the 5200-level, which has been a troubling level, why wouldn’t a trader or dubious fund manager book some profit?
Evan Lucas, a market strategist at IG, made the same point recently, arguing “possible buyer exhaustion” was at work. He also pointed out that 84% of ASX 200 companies are now above their 50-day moving average.
That said, after such a crappy year, those averages weren’t hard to beat!
Taking us down was also some softer oil prices overnight and these hit Wall Street but prices advanced on Friday in Asia, which says this oil spike might still have some legs. In fact, the revelation that OPEC will meet in Russia in May was another prime mover for oil prices over the week.
Oil is the critical catalyst for the market and I was interested in the views of Mike Rothman, the founder of Cornerstone Analytics, who says that oil demand is understated.
“Even in the just-ended quarter, global oil demand came in about 1 million barrels a day higher than what the consensus believed,” Mike Rothman told CNBC. “Oil demand grows this year by 1.8 million a day and non-OPEC supply contracts by 800,000.
“There’s no way that OPEC fills a 2.6 million hole.”
On the other hand, the International Energy Agency released an April report stating that growth in global oil demand is declining around 1.2 million barrels per day. The agency said that global oil supply sank in March by 0.3 million barrels per day to 96.1 million barrels per day. In contrast, the IEA said on Thursday that non-OPEC production would fall this year more than it has in previous generations.
A very confident Rothman says oil is heading to $US85 by year’s end, which is more than double current prices, which means it’s very bullish for stocks, if he’s right. I hope he is.
What I liked
- This week’s movement for stocks, especially Monday. The mere 20-point fall on Monday after the failed Doha meeting was a confidence booster.
- The 5236.4 number on the S&P/ASX 200 after 4pm on Friday. It means more when you know our recent low was 4707 in February, so that’s an 11.2% gain! (I know I’m gloating and I know we have a way to go but when you stick your neck out and call it a buying opportunity, it’s nice to get it right.)
- Wall Street didn’t spit the dummy on Friday after a negative Thursday, which led to our 36-point drop on Friday but I have to say I liked the measured nature of that fall.
- Oil rose again overnight up 1.3% and the rise over the week was around 8% – without a Doha agreement.
- Linked to this week’s Caterpillar profit report were references to “improvements in the China market.”
- The European stock market was up around 1.7% this week.
- Disney rose 2.7% after Jungle Book dominated the weekend box office, grossing more than $100 million. And Toymaker Hasbro jumped 5.7% after reporting a better-than-expected quarterly profit. I think people going to movies and buying toys is a good sign for the economy.
- The Sydney-Melbourne airline route is a key indicator of business activity. Passenger numbers in the year to February hit a record 8.7 million. (Smoothed annual growth was the best in 28 months.)
- New vehicle sales rose by 2.2% in seasonally adjusted terms in March to be up by 4.2% on the year. Sales of SUVs (421,625) hit record highs in annual terms.
- The overall stock market vibe but we do need to see the better than expected US earnings be sustained and the economic data flow, along with oil prices, needs to play ball as well or else this nice rally will be tested in coming weeks. The Dow ended overnight up, which was a big plus considering this testing time.
What I didn’t like
- The Markit flash US manufacturing PMI dropped from 51.5 to 50.8, which still means the sector is expanding but I’d prefer to see a rise.
- In the 12 months to March 2016, the budget deficit stood at $42.55 billion (around 2.2% of GDP), up from $36.1 billion in the year to February (inflated by an extra trading day) but in line with the average deficit over the past year. What a difference a month makes!
- Mario Draghi at the ECB meeting did not talk it up effectively, which is his job.
- The US Philadelphia Federal Reserve business conditions index fell from 12.4 to -1.6 in April – that’s a big fall worth watching.
- US housing starts fell by 8.8% in March to a seasonally adjusted pace of 1.09 million units – the lowest level since October. Building permits fell by 7.7% to a one-year low.
- The Oz dollar rise and this from the RBA: “The Australian dollar had appreciated by almost 7 per cent against the US dollar over the past month. It had appreciated by 4 per cent on a trade-weighted basis.”
“Members noted that an appreciating exchange rate could complicate progress in activity rebalancing towards the non-mining sectors of the economy.” - George Soros returned to his anti-China stance he ran with in January at Davos, which didn’t help the stock market’s already big sell-off. Some big name market players use the media to influence the market to suit their own purposes. A lot of short-sellers are hurting right now and they would’ve loved George’s comparison of China to pre-GFC USA! I didn’t.
Top stocks – how they fared
[table “170” not found /]The week in review
(click the blue text to read more)
- This week [1] I explained why picking stocks for your portfolio depends on a bunch of factors including your age, goals and appetite for risk.
- Roger Montgomery [2] shared a stock with solid long-term growth prospects.
- Rhett Kessler of Pengana Australian Equities Fund gave you three game-changers and disruptors for 2016 [3] including ResMed (RMD), Tatts Group (TTS), and Nanosonics (NAN).
- Cromwell Properties and Brambles found favour with our Super Stock Selectors [4] while Woolies got the thumbs down.
- Charlie Aitken explained why Telstra [5] is positioned for outperformance on a number of different factors.
- Tony Featherstone gave you four new Listed Investment Companies (LICs) [6] to watch – including Bailador Technology Investments (BTI), Argo Global Listed Infrastructure (ALI), PM Capital Asian Opportunities Fund (PAF) and Ellerston Global Investments (EGI).
- The brokers [7] placed Aristocrat in the good books but Ainsworth and Iluka copped downgrades. In our second broker report [8] Oil Search and Perseus Mining were both upgraded.
- Tony Negline outlined the ATO’s latest borrowing rules. [9]
- And retired wheat farmer Michael Georgeff [10] explains how he’s made managing his SMSF a worthwhile experience.
What moved the market:
- Rallying energy and mining stocks helped our market hit a new high for 2016 and provided relief from a Doha “Noha” oil production negotiation over the weekend.
- Wall Street was also up on an oil rebound, but better than expected earnings reports from companies like Disney, Hasbro and Johnson and Johnson also helped buoy investor sentiment.
- Wall Street’s rally was tested later in the week by a pullback in crude and a negative Philly Fed result.
- And European shares lowered slightly after the ECB kept rates on hold.
The week ahead
Australia
- Wednesday April 27 – Weekly consumer confidence
- Wednesday April 27 – Consumer price index (March quarter)
- Wednesday April 27 – Victorian State Budget
- Thursday April 28 – Trade price indices (March quarter)
- Friday April 29 – Speech by RBA official
- Friday April 29 – Producer prices (March quarter)
- Friday April 29 – Private sector credit (March)
Overseas
- Monday April 25 – US New home sales (March)
- Tuesday April 26 – US Dallas Fed Index (April)
- Tuesday April 26 – US Durable goods orders (March)
- Tuesday April 26 – US CaseShiller home prices (February)
- Wednesday April 27 – US Federal Reserve Rate Decision
- Thursday April 28 – US Economic growth (March quarter)
- Friday April 29 – US Consumer confidence (April)
Calls of the week
- Charlie made the call to put his money where his mouth is [5], with his fund investing in the telco Telstra. He says the worst is behind this blue chip’s share price and his crystal ball is full of capital gains, franking credits and delicious dividend growth!
- The Senate made the call to refuse passing legislation to reform the ABCC, providing PM Turnbull the trigger for a double dissolution election on July 2.
- The Government called on the big banks to plough $121 million in a user-pays system to fund the corporate watchdog ASIC.
- And Johnny Depp and his partner Amber Heard made the call to star in their very own Australian biosecurity warning video [11] after getting busted for busting their pups, Pistol and Boo, into the country!
Food for thought
“My definition of success? The more you’re actively and practically engaged, the more successful you will feel.”
– Richard Branson
Last week’s TV roundup
- Hugh Giddy of Investors Mutual outlines how he’s playing stocks [12] going forward on Super TV.
- What companies look like prime takeover targets? [13] To help us pin-pick companies ripe for devouring, Beulah Capital’s Tom Elliot joins the show.
- Adam Muston of UBS Global Asset Management talks about the rapid growth of Exchange Traded Funds [14] on Super TV.
- And chief investment officer at NAOS Asset Management, Sebastian Evans, explains where investors can find value in the market. [15]
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 WorleyParsons increased its short position by 1.22 percentage points from 14.13% to 15.35%. Bellamy’s followed, with its short position increasing from 7.71% to 8.07%.
[16]Source: ASIC
My favourite charts
The BHP bullet train
[17]Source: Yahoo!7 Finance
Those of you who jumped on BHP at $15 levels would be very happy campers right now. The share price cracked $21 this week and is currently sitting around $20.50. Can this rally be sustained?
Senior participation in workforce hits record highs
[18]Seniors are great participators in the workforce, with those in jobs or looking for work at record high levels of 3.66 million! According to CommSec, this is great for the economy as it increases tax revenues and reduces expenditure on pensions.
Top 5 most clicked on stories
- Charlie Aitken: Telstra: Dividend certainty in an uncertain world [5]
- Roger Montgomery: Undervalued and poised for growth [2]
- Peter Switzer: Are Roger Montgomery’s stocks right for everyone? [1]
- Charlie Aitken: Is the worst over for resources? [19]
- Paul Rickard: Not many leaks with this IPO [20]
Recent Switzer Super Reports
- Thursday, 21 April, 2016: Investing beyond the noise [21]
- Monday, 18 April, 2016: Picking the blue chippers [22]
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.