ALGO Update: Sell Signal In STO

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Our ALGO engine triggered a sell signal for Santos into the close of trade yesterday at $3.81.

Recently, Santos reported solid earnings growth and have paid down a higher percentage of debt than the market expected earlier in the year.

In addition, the current rebound in Crude Oil prices has been a factor in the stock rising from $3.25 to $3.80 over the last two weeks.

With the US refineries based in Houston still preparing to come back online, and hurricane Irma now targeting Southern Florida, Santos shares  could could firm into the the $4.00 resistance level, near-term.

Over a longer time-frame, we expect both Crude Oil prices and shares of Santos to trade lower.

We will watch these two markets closely and give specific trade levels once a clear trade signal emerges.

Santos

 

Take Profits In Newcrest Mining

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On August 8th, Spot Gold posted a low during the New York session of $1254.00.

Overnight, the yellow metal posted a 10-month high of $1341.00, a 7% gain in less than a month.

Over the same period of time, Newcrest mining has rallied from $20.25 to post a high of $23.70 early in yesterday’s session. This move represents a bit less than a 17% gain.

Even though the heighten geopolitical tensions which have supported the Gold price are still very much a part of the market, technical momentum indicators are signalling that investors can expect a short-term correction lower.

We believe the medium-term price trajectory in Gold will remain intact after the overbought conditions are alleviated.

As such, we suggest taking profits today in NCM, along with the smaller Gold miners: EVN, SAR, NST and OGC.

Newcrest

RBA Meeting Highlights A Busy Data Week

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It’s going to be a busy data week for the Aussie Dollar, which could lead to some increased trade activity in the AUD/USD. 

The schedule includes the RBA and Current Account data on Tuesday, followed by the quarterly GDP data on Wednesday, and then the Retail Sales and Trade Balance report on Thursday.

Any of these reports could put further downside pressure on the Aussie Dollar and return the pair below the .7800 level for the week

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

YANK is an inverse ETF, which means the unit price increases as the price of the AUD/USD decreases.

YANK also has a 2.5% weighting, which means a 1% change in the AUD/USD will correspond to a 2.5% move in the unit price.

The current price of YANK is $12.70.

We calculate that when the AUD/USD trades back to the January low near .7300, the unit price will trade at $16.75.

BetaShare ETF Yank

 

Gold Jumps Higher On Heighten Tensions Over North Korea

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Spot Gold has started the week close to a 10-month high of $1338.00 as North Korea’s test of a hydrogen bomb triggered the usual shift to safe haven assets, while stock futures are pointing to a lower day for global equities.

Local Gold stocks have opened higher with Newcrest posting a 4-month high of $23.78 in early trade.

With the US markets closed for Labor Day holiday, we could see some consolidation as technical levels now seem stretched.

Over the medium-term, we expect both the price of spot Gold and the local mining stocks to continue with an upward trajectory.

However, we do see near-term scope for a technical pullback in Newcrest to the $23.20 level, and to the $2.38 level in Evolution Mining.

Newcrest

Evolution Mining

 

US Jobs Outlook Weakens, Debt Ceiling Concerns Continue To Grow

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There were no bright spots in yesterday’s US Payroll report.

The 156,000 growth in jobs disappointed and is well below the recent averages. The back two months were revised lower by a total of 41,000 jobs.

The unemployment rate ticked up to 4.4% even though the participation rate was unchanged at 62.9%. Weekly average earnings fell from .2% to .1%.

This was enough to lift US Stock Indexes higher into the weekend.

The NASDAQ had it’s best week since December 2016, finishing 2.75% higher, and the S&P 500 rose 1.5% for its best weekly performance in 4 months.

However, as illustrated in the chart below, the shortest end of the Treasury curve remains troubled as the debt ceiling panic continues to build.

And while the US 10-yr yields rose modestly to 2.16% after the payroll data, the T-Bill yield dislocation has extended out to 32 .25 basis points.

This  indicates that the market remains extremely nervous about a debt ceiling crisis over the next month, which is not bullish for US equities. 

September 21st versus October 5th T-Bill yield spread

  

ALGO Update: Stay Short BOQ and BEN

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The ALGO engine triggered a sell signal for BOQ on July 25th at $12.00, and for BEN on August 18th at $12.49.

Over the last two weeks, shares of these two regional banks have sold off less than the shares of the 5 larger domestic banking names.

Over the near-term, we see that divergence fading and expect the downside momentum in BEN and BOQ to pick up pace going into September.

We have adjusted our target prices to $11.15 in BEN and $12.05 for BOQ.

Bank Of Queensland

Bendigo Bank

US Labor Day Preview

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During yesterday’s Asian session and into the London time frame, investors were anxious about North Korea’s provocative missile launch, the flooding disaster in Texas, and the looming US debt ceiling debate.

However, once the US session opened, investor’s attenton  turned to preparing for the Labor Day long weekend, which marks the end of the Northern Summer.

The NYSE will close early on Friday and will remain closed all day next Monday.

Volume on the Dow Jones 30 was barely 220 million, down 25% from the 3 month rolling average of 310 million per day.

As the chart below illustrates, the SP 500 remains below the 30-day moving average with a downward bias.

S&P 500 Index

 

Gold Jumps On North Korean Missile Launch

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Earlier this morning, North Korea launched a ballistic missile that flew over the Northern part of Japan and landed in the Pacific near Hokkaido.

The missile was fired from the Sunan region around 7:30 am, Sydney time, and flew approximately 2,700 km at an altitude of about 550 km.

Both South Korea and Japan responded with a strong statement denouncing Pyongyang’s sharp escalation of tensions in the region.

Gold was already $12.00 higher after the US session and added another $8.00 after the news broke this morning. As illustrated on the chart below, spot Gold broke above  a 7-year downtrend line and reached a high of $1324.50.

In an environment of global economic uncertainty and heighten geo-political tensions, we still prefer the long side of Gold and see the next resistance level at $1340.00

We still see scope for more upside in the local Gold names. Both Newcrest and Evolution are trading over 2.5% higher in early trade. We consider an upside target of $23.60 in NCM and $2.95 in EVN as reasonable price targets.

Spot Gold

Newcrest Mining

Evolution Mining

 

More Troubles For The CBA

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Shares of CBA have posted a new low for the year at $76.55  as APRA announced that they will be setting up an inquiry after a series of problems prompted concerns about the bank’s culture, leadership and accountability.

This is  not a good addition to CBA’s current AML allegations from AUSTRAC and a class action suit filed on the behalf of shareholders.

On balance, we don’t see any obvious catalyst to drive any of the domestic banking names higher and CBA now has the weakest technical structure.

The next key price support for CBA will be found near the October 2016 area near $75.00.

  Commonwealth Bank

 

 

 

 

NYSE Internal Indicators Weaken Further

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As the major US stock indexes gyrate on fundamental economic reports and political developments relating to tax reform and debt ceiling legislation, many technical indicators are reflecting the deterioration of upside price momentum.

The chart below illustrates that the percentage of NYSE stocks trading above their 200-day moving average has decreased at a brisk pace over the last month.

When this indicator moves below 50%, it is saying that fewer stocks are supporting the overall index price level.

Historically, this has resulted in at least a 5% correction in the SP 500 over the near-term.

On that basis, the 4-week target for the SP 500 would be in the low 2300.00 area.

NYSE Breadth