Post-Brexit. Weekly Report for the week ending 1 July, 2016.
CONTENT
Australian Market: Weekly Performance Chart
Australian Market. XJO - Monthly, Weekly, Daily Charts.
ASX 100 - Stock Ratings
Australia, Risk-On or Risk-Off?
Top Ten Stocks.
Summing up.
AUSTRALIAN MARKET: SECTOR PERFORMANCES IN THE PAST WEEK.
XAO up +2.58%.
All Sectors were up. Strongest Sector was Materials +5.4%, followed by Utilities +3.96%. Third was Telecomms, up +3.95%. Utilities and Telecomms were in the top three the previous week. The fourth placegetter was Health +3.94%. So there's little between 2nd, 3rd and 4th places. Those three are all Defensives, so the market remains cautious. IAF (composite bonds) was down -1.35%, but that's not a good representation of its performance this week as it went ex-dividend on Friday.
Energy was the worst performer in the previous week, so it continues to follow its erratic path, up/down, up/down, etc.
The worst three sectors were: Info.Tech +0.47%, Industrials +1.32% and Consumer Staples +1.48%.
This week 13 Stocks from the ASX100 made New 52-Week Highs. 7 Stocks made New 52-Week Lows. Most of those new lows were made early in the week under the influence of the Brexit panic, while most of the new highs occurred later in the week as the market rebounded from panic lows.
69.7% of ASX100 Stocks are above their 200-Day Moving Averages. That remains at a healthy, bullish level. The ASX100 covers 74% of the stocks by value in the ASX.
48.5% of ASX100 stocks is positive on the trend measurement indicator, DPO. The previous week was 23%. So that's a sharp improvement.
On a one-year basis, the strongest sectors are Health, Consumer Discretionary and Utilities. Industry Groups, Gold Miners and Property are also strong. Three sectors are line ball - Materials, Telecomms and Consumer Staples. The worst performer is Energy. Most of its under-performance occurred in the first half of the 2015-2016 Financial Year. For the early months of 2016, Energy had a strong performance but has since stagnated.
Look for trading opportunities in the strongest sectors and avoid the weakest sectors. (There are always exceptions. See below for more details.)
Here's another way of looking at Strength/Weakness in Sectors and Industry Groups:
Four Sectors are above all of their 20/50/200 Day MAs: Utilities, Materials, Consumer Discretionary and Energy. The weakest Sectors are Financials and Consumer Staples.
XJO: Monthly, Weekly, Daily Charts.
The last little stumpy candle is the first day of July, Friday. So we won't concern ourselves with that. The market is currently in limbo, held between the 10-Month MA and the 20-Month MA. We need to see a close above the 20-Month MA to confirm the bullish trend. Indicators are close to confirming the bullish trend, but close is not enough to win the bunch of bananas. I'd like to see both the CCI and DPO above zero to feel more confident. We're now almost one week left in June. The technical picture is currently disappointing.
Major horizontal support lies at 4987. The Index closed on Friday at 5246.6.
XJO up this week +2.61%.
The medium term uptrend is now precarious. The 50-Week MA provided support, and the Index is now back above the 20-Week MA (which is also above the 50-Week MA). Those are solid positive readings.
Overhead, however, are the 200-Week MA and the Super Trend line. Those last two stopped the nascent bull market in its tracks four weeks ago.
CCI and DPO are both above zero. The odds are continue to be tilted to the upside, until we once again reach the Super Trend Line.
Positive divergences on the Short-Term Stochastic (14.3.5) and the CCI both predicted the upswing we saw this week. Those divergences are usually reliable. CCI is now above its zero line and has plenty of upside room for further movement.
The relationship of the short term Stochastic (14.3.5) and the long term Stochastic (50.10.10) suggests that there will be further gains. Long term Stochastic has now flattened out, a rise in that indicator would support the notion of further rises.
The Index is now about to enter a congestion zone, so expect progress to slow down in the near future.
ASX 100 - STOCK RATINGS.
Momentum is one of those anomalies which throws doubt on the Random Walk Theory of Stock Markets.
As a general rule, avoid stocks in the weakest sectors, and look to stocks in the strongest sectors. (There are always exceptions.)
The following charts show the stocks from the ASX100 in each of the ten sectors. Relative Strength is a blunt instrument. Use technical analysis for entry to these stocks.
Remember that the following charts show "relative strength", i.e., strength of the indices and stocks compared to action in the XJO. Bars above the zero line do not necessarily indicate that a stock or index is bullish - only that it is doing better than the XJO.
Utilities.
Utilities was up this week and set a new 52-Week High. It continues to be one of the better performing Sectors, if unspectacular, on a one year basis. It tends to be a steadfast defensive sector. The stand-out is AGL. With a Relative Strength of 0.86, it is one of the best performing stocks in the ASX100. On current prices, AGL pays a dividend of 3.4%. AST is also performing well and pays a handy dividend of 5.3%.
Spark Infrastructure set a new 52-Week High and pays 4.9% while APA pays 4.3%. Duet pays 7%. Utility stocks generally pay good dividends.
Industrials:
The Industrials Sector is home to some of the better performing stocks on the ASX100. Blackmores is a standout here. But that's a furphy as it has recently taken a beating. It was over $220 and is now back to $133. I'd be concerned about buying Blackmores until we see a turn-around in the stock price. I've previously said that if a high performing stock falls below its 200-Day MA, it should be sold. Currently Blackmores is well below its 200-Day MA. Its on the no-buy list.
Aristocrat is the best performer. It set a new 52-Week High this week. Asciano, Transurban, Seek, Sydney Airports, Cimic and Brambles are all performing well. TCL (Transurban) pays a solid dividend of 3.6%. Sydney Airports also pays a solid dividend of 4%.
Qantas made another new 52-Week Low this week. Avoid.
Materials:
Materials is hovering on zero on this chart. It's been steadily improving in recent weeks. But this is a mixed bag. In general, avoid the miners. Newcrest and FMG are the best of them. FMG made a new 52-Week High this week, as did Newcrest. They're worth consideration. Bluescope and James Hardie are both building materials producers and benefitting from the recent real estate bull market.
On current pricing, ABC pays 4%, ORA pays 3.1%, Amcor 3.6%
Financials X-Property:
XXJ is one of the worst performing sectors on a one year basis. The four big banks are all on the negative side of the ledger. Forget about the big banks until we see some solid improvement. Some of the stocks with exposure in Britain fell heavily as a result of the Brexit panic. HGG made a new 52-Week low - it has exposure in Britain. BOQ also made a 52-Week Low. Avoid those two stocks.
CGF is clearly the best performing stock and pays a dividend of 3.5%. CGF is a fund manager. No stocks made new 52-Week highs. IAG, MFG, ASX are performing well relative to most in this sector. IAG pays 6%. MFG pays 3.4%. ASX pays 4.1%.
The banks all pay healthy dividends, but until we see a turn around in their prices, the risk is a bit too high.
Health and Information Technology:
Health is the best performing Index. Cochlear is the standout and is just off a new 52-Week High this week. Resmed made a new 52-Week High this week. CSL has been a great performer but recent action over the past few weeks has been poor. Wait for a bounce. Both COH and CSL are growth stocks and pay low dividends. Sirtex made another new 52-Week Low this week. Avoid.
Carsales.com (CAR) is clearly a standout in Info.Tech. Dividend Yield 2.9%.
Consumer Staples:
TWE is one of the best performers in the ASX100 but has performed poorly since the end of May. This week it bounced nicely this week off horizontal support. It's been a great growth stock and is once again worth a look. WES is still the pick of the two big retailers, if you must have one in your portfolio. Wesfarmers yield is 5%. Woolworths remains in a long-term downtrend. It is just off a 52-Week Low. Dividend is 5.4%.
Avoid until a new uptrend becomes clear.
Consumer Discretionary and Telecomms.
Rea Group in XDJ is just off a new 52-Week High this week. DMP is the stand-out. I've been nervous about the status of DMP. Its price remains at a high level, but the Accumulation/Distribution Indicator has dropped off. But the price has held up well, so my jitters are just that - jitters - not confirmed by a price fall. If you hold DMP I'd be watching it closely for deterioration, it might be time to bail out of DMP after it has had a great run. That time hasn't come yet, despite my misgivings.
Other solid performers are Navitas and Star Entertainment. NVT made a new 52-Week High this week and pays a dividend of 3.6%.
Telecomms are interesting. Telstra remains enticing to the dividend hunter: dividend +5.6%. It's been in a gently sloping uptrend since late February. With the Brexit panic it fell to the lower edge of the channel and then bounced nicely. One for the traders. TPM and Vocus have been very good performers
Energy
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On a one-year basis, Energy is a dreary sight. It performed reasonably well early in 2016, but since then has been in a sideways trading range. If it can break upwards out of that trading range, some good buying can be expected. Until that happens, I'd avoid the Energy sector.
Property
Property is an industry group in the Financials Sector, but is worthy of standing alone for analysis. On a one year basis, it is one of the better performers in our market. Most of the stocks are performing well with three stocks having a Relative Strength >0.3. Dividend yields are: DXS 4.6%, GMG 3.2%, GPT 4.2%, MGR 4.8%, SGP 5.1% and WFD 3.2%.
DXS, IOF and MGR all made 52-Week Highs this week.
A cost effective entry to the sector is provided by ETFs such as SLF. Dividend Yield: 3.3%. It went ex-dividend on 29 June. Dividends are paid quarterly.
RISK-ON/RISK-OFF
The above chart shows the Utilities Sector. It made a new 52-Week High this week. It's relationship to the XJO (bottom panel) does a reasonable job of indicating Risk-On/Risk-Off. Since early in June, that chart has been rising, suggesting a Risk-Off Environment. It remains above its up trend line. This suggests caution about any new longer term investments.
I also mentioned above that three out of four of the best sectors this week were Defensives. That's unusual in such a strong rebound.
TOP TEN STOCKS FOR JULY:
The Top Ten Stocks for June returned +0.026% while the XJO fell -2.7%
The Top Ten Stocks for July are: TWE, AGL, Cochlear, MGR, DMP, VOC, JHX, BSL, TPM, AST.
Summing up:
We've had two weeks of extreme volatility. The XJO is now getting back into a tight congestion zone. Turgid trading is likely to happen in the next week or so.
Action in Defensive Sectors suggests that "smart money" is still cautious about the market.
I don't think we'll see a lot of change in the coming week. If we break upwards out of the congestion zone, then we could be looking at much higher prices.
Keep an eye on the Energy Sector. It has been trading sideways now for many weeks. A break higher could lead our market to the upside.
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