ALGO Update: Sell Pilbara Minerals

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The ALGO engine triggered a sell signal in Pilbara Minerals at 56 cents on the ASX close on Friday.

Shares of the WA-based lithium producer jumped over 40% last week following a report that China plans to ban new petrol and diesel engines by 2030.

We don’t believe this timetable is realistic and that some form of clarification of the policy is likely to be forthcoming from the Chinese government.

In the meantime, investors holding shares in PLS should look to take profits on long positions and look to re-enter back in the 40 cent area.

Pilbara Minerals

 

 

 

FOMC Preview: It’s All About The Balance Sheet

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This coming Tuesday and Wednesday, the FOMC will meet to discuss the next move in US monetary policy.

Over the last several months, it’s been well-telegraphed that this meeting will focus on unwinding QE and shrinking their balance sheet. The amounts and the mechanics have already been announced. Now it’s just a matter of announcing a starting date.

US financial markets have been brushing off the Fed and have done the opposite of what the Fed has set out to accomplish.

The Fed wants to tighten US financial conditions. It’s worried about asset prices and that these inflated assets, which are used as collateral by the banks, pose a danger to financial stability.

The FED has mentioned several inflated asset classes by name, including equity prices and commercial real estate, which backs $4 trillion in loans heavily concentrated at regional banks.

The FED has raised rates four times since December 2015, including three times over the past nine months. As the chart below illustrates, the relationship between the DOW Jones Index and the FED’s balance sheet is highly correlated.

As such, the FED’s decision could be a prime driver of US equities next week.

ETF UPDATE: Aussie Capped In Front Of Today’s Jobs Report

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The AUD/USD posted a 2.5-year high of .8125 on September 8th. On that day, the US 10-year bond yields had dipped to a six-month low of 2.03%

Since then, the 10-year yields have climbed higher and reached 2.19% in NY trade today. The AUD/USD has traded lower overnight and is testing support at .7980; a break of this level will give scope to the .7910 area.

There are many components of forex pricing but yield differentials will always have the biggest impact.

As such, if today’s domestic employment report posts lower than forecast, we expect to see more downside in the AUD/USD.

Investors looking to profit from a lower AUD/USD can buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF, which means the price of YANK increases as the AUD/USD trades lower. It also has a weighting of 2.5%, which means the unit price will fluctuate  by 2.5% for every 1% change in the AUD/USD exchange rate.

With a current price of $12.60, we calculate that the price of YANK will be near $16.50 as the AUD/USD returns to the January low of .7160.

BetaShare ETF: YANK

 

 

Looking For The Buy Zone In Newcrest

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Since posting a low of $1204.00 on July 10th, Gold has rallied over $150.00 to hit an intra-day high of $1358.00 on September 8th.

Geopolitical tensions, Political uncertainty, weather events and volatile global equity markets have all been drivers of the Gold price over the last three months.

And while these events are still very present in the market, changes in their impact can be difficult to forecast.

Shares of Newcrest hit an intra-day high of $23.85 on September 6th. Since then we’ve seen over a $1.50 pullback to $22.10.

Ideally, we would like to see NCM shares at or around the $21.90 area to re-establish long positions on a scale-in basis.

Newcrest Mining

 

ALGO Update: Stay Short CBA

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Shares of CBA have traded back over $75.00 in early trade on the back of solid gains in the US banking sector on Wall Street.

However, we see this as a brief corrective move within the broader 8% decline over the last month.

A report from Credit Suisse this morning suggests that the CBA could face a $200 million increase in its annual operating costs over the next two years because of legal fees and related costs to defend the AUSTRAC money laundering accusations.

Our ALGO engine triggered a sell signal in CBA on July 4th at $84.00. We see solid technical resistance in the $75.60 area and more range extension to the $70.00 handle over the medium term.

Commonwealth Bank

 

STO Trade Update

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With the recent hurricane activity near refinery locations in the USA, the price of Crude Oil has been volatile and difficult to forecast accurately.

This has kept our ALGO sell signal for STO offside since it was triggered on Wednesday at $3.81.

With spot Crude Oil prices dropping over 3%, and below $47.50, during yesterday’s NY trade, the Short STO signal may look more attractive on Monday.

Santos

Crude Oil

 

 

 

ALGO UPDATE: Sell Sandfire Resources

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Our ALGO engine triggered a sell signal in Sandfire Resources on the ASX close on Friday at $6.44.

The WA-based copper producer has seen its share price rise over 17% since posting a low of $5.50 on August 29th. The spot price of copper has rallied 10.4% over the same period of time.

However,  NY High-Grade Copper futures fell 3.25% in overnight trade on reports that recent Chinese demand has peaked and a price correction in copper is forthcoming.

The recent share price action illustrates that SFR is strongly correlated to the spot copper price and could revert  lower if the spot price declines.

We will follow this ALGO signal closely and update for a potential trade strategy.

Sandfire Resources

NY High-Grade Copper

 

 

 

ALGO UPDATE: Buy Signal In MQG

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The ALGO engine triggered a buy signal on MQG at yesterday’s ASX close at $83.01.

The stock has dropped over 7% since posting an intra-day high at $89.35 on August 17th.

This swift decline has pushed internal momentum indicators into an “oversold” area, which the technical ALGO engine picked up on when creating the buy signal.

We remain cautious of the forward earnings potential in the local banking sector and will monitor this trade over the next few trading sessions.

At this point, we would consider any move in MQG up into the $84.90 area as a corrective reversion and an area to sell long holdings or establish short positions.

Macquarie Group

 

US Debt Crisis Averted………Until December

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US Stock indexes may have dodged a bullet today when President Trump defied his White House advisors and sided with Democrats to defer the debt ceiling debate until December.

Using the legal structure of a “continued resolution” linked to emergency aid to victims of hurricane Harvey, the proposal would suspend the borrowing cap, currently at $19.9 trillion, until December 15th.

And while this manoeuvre calmed the nerves of T-Bill investors into the October maturity, the fear premium of a government shutdown has just been transferred to the December maturity.

Over the next few days we expect to hear more about how this political tactic will impact the administration’s legislative goals on tax reform, infrastructure programs and border security.

The prime risk to US equity markets is that credit agencies view this failure to address the debt ceiling as cause to downgrade US Sovereign debt ratings.

In short, “kicking the can” down the road has not made US assets less risky at current levels.

December T-Bill Yields

 

 

 

ALGO UPDATE: Buy Signal In SHL

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On August 16th, shares of Sonic Health care posted an intra-day high of $23.76.

The next day the company announced that NPAT fell 5% to $427 million, which was the worst component  of a reasonably good earnings report.

Our ALGO engine triggered a buy signal on SHL on Tuesday at $21.46.

We consider SHL a defensive stock, which has been oversold, and has now found good buying support in the $21.40 area.

Investors with a medium-term outlook can look to buy SHL with an initial target of $22.35 and a $21.20 stop.

Sonic Healthcare