ETF Update: Stock Indexes Brace For FED Testimony

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Over the last three trading sessions, volume for the Dow Jones 30 and the ASX 200 have both dropped by about 20% versus their 3-month rolling averages.

Some of the reduction in turnover is seasonal due to the Northern summer. However, many analysts are pointing to tonight’s Senate testimony from FED Chief Janet Yellen as a focal point which has kept traders on the sidelines.

At around midnight Sydney-time, Ms Yellen will address the Senate Banking Committee. She will update lawmakers on interest rate policy, the rate of balance sheet normalization and take questions.

The “cause and effect” logic is that if Ms Yellen’s comments reflect a more “hawkish” position from the FED on rate hikes and reducing the $4.5 trillion balance sheet, US equity markets will trade lower, which will likely spill over to the ASX.

Investors looking to profit from a lower XJO 200 or SP 500 can look to buy the BetaShare ETFs with the Symbol BBOZ or BBUS.

Both of these are inverse ETFs, which means that the unit price will increase as the indexes trade lower.

In addition, both of these ETFs are weighted, which means that a 1% change in the respective index translates to a 2.5% move in the ETF.

BBOZ is currently trading at $17.80, we calculate that the price would rise to $18.60 if the XJO 200 traded back to the June 8th low of 5620.

BetaShare ETF BBOZ

BetaShare ETF BBUS

ALGO Update: CBA And MQG Look To Be Slipping Lower

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Our ALGO engine triggered a sell signal in CBA on June 29th at $84.10.

Since then the stock has traded as low as $81.80 and has a clear downward bias. In addition, the share price of MQG has also moved lower since late-June and internal indicators appear to be picking up momentum on the downside.

The Aussie banks, in general,  look to have a downward bias relative to the prices seen in late-May.

As such, we see the next technical support target for CBA at $78.50 and at $85.90 for MQG.

For more specific chart analysis of the local banking sector, send us an email or give us a call.

CBA

 

MQG

Gold Update: Look To Buy Near $1200.00

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Over the last 7 months, Gold has traded in a broad range between $1200 and $1300.

As inflation, interest rate expectations and equity market risks have fluctuated over that time, so has the price of Gold.

On balance, we expect the $1200.00 support level to hold and find buyers as the yellow metal moves back to the top part of the recent price range.

Investors looking for the price of Gold to move higher can look to buy NCM, EVN or the BetaShare Gold ETF with the symbol: QAU.

Spot Gold

 

ALGO Update: Buy Signal In CIMIC Group

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Our ALGO engine triggered a buy signal in Cimic Group yesterday on the ASX close at $38.20.

After posting a new 52-week high of $41.10 on May 24th, shares of CIM had pulled back over 8% to 37.50  before recovering into Friday’s close.

A report that CIM is preparing to offload its 23% stake in Macmahon Holdings and restart its share buyback plan helped the stock find buyers.

This, combined with the credit rating upgrade from S&P in late May, gives CIM a positive outlook going forward.

At 23x earnings, the shares are mildly expensive, but the upside potential to $41.00 sets up a reasonable “buy/write” investment opportunity.

CIMIC Group

ETF Update: Exit The OOO Crude Oil Trade

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Despite a larger-than-expected fall in US Crude Oil inventories, the price of West Texas intermediate (WTI) Crude Oil failed to hold the recent gains above the $45.50 level and looks to be rolling over.

The US EIA reported that crude oil in storage fell by 6.3 million barrels versus an expected fall of 2.3 million barrels, which pushed WTI up to an intraday high of $46.25. 

However, news that OPEC producers have not agreed to renew their production cuts has prompted investors to believe that Crude Oil supplies are not going to balance in the near term.

We suggested buying the BetaShare Oil ETF with the symbol, OOO in the $12.35 area on June 22nd. We now suggest closing that position in the $12.75 area and looking for another opportunity to enter the market on a test of the $41.00 level.

BetsShare OOO  

 

 

 

 

ALGO Update: IPL Showing Increased Upside Potential

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On May 23rd, the ALGO engine triggered a buy signal in IPL at $3.40. Since then the stock has traded in a moderate range of $3.30 to $3.60.

While we view the outlook as broadly positive given the ramp up of the WALA ammonia plant in Louisiana and domestic fertilizer demand, this has been offset by the upcoming change in their CEO and declines in global fertilizer prices.

IPL is currently trading at 30% discount to its North American peers, and at 13x  estimated FY 18 earnings, we see the upside potential into the $4.15 range over the medium-term.

At the same time, we expect the 2017 EPS of 21 cents to rise to 25 cents in FY18, which puts the stock on a forward yield of 4%.

IPL

 

ALGO Update: Buy Signals For GPT, SYD and TCL

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Over the last three weeks, shares in local infrastructure and property trusts have really taken a beating.

Some of the yield-sensitive names have lost between 5 and 10% as Australian interest rates in the 2yr to 5yr tenors have followed global interest rates higher.

One of the major aspects of the recent rise in rates has been the consensus amongst G-7 central bankers that the era of low rates and financial stimulus will be coming to an end.

It’s our base case that the market has gotten ahead of itself with the prospects of sustainable higher yields.

With global equity markets still at elevated levels, a material repricing, or “risk-off” period, in the market would increase the demand for “safe haven” government bonds, which would ease rates lower.

The specific stocks that we are following include GPT, TCL and SYD.

The ALGO engine triggered buy signals in these three names at yesterday’s close.

Given the sharp sell off that these names have seen over the last few weeks, we feel the upside potential is an reasonable trade.

GPT

TCL

SYD

QANTAS: Share Price Reaches High Altitude

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Shares of Qantas reached a 10-year high of $5.90 on Friday as investors respond to several broker valuation upgrades and the rumor of a credit rating upgrade from Moody’s investor services.

One of the reports forecast a target of $7.09 with an expected dividend of 15 cents per share, which would be more than double the 7 cents per share posted in FY 2016.

With internal momentum indicators now in overbought territory, we suggest a price reversion lower over the short-term. We will watch the ALGO engine for new signals and expect initial support in the $5.15 area.

QANTAS

 

ETF UPDATE: US Dollar Gets Steamrolled By Central Banks

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In the lead-up to the long July 4th holiday, the FX market is usually pretty quiet; this was not the case this week.

In an unprecedented development on Tuesday, officials from the ECB, Bank of England, Bank of Canada and the US FED delivered speeches that outlined higher domestic interest rates and removal of stimulus sooner than the market had expected.

Since the US FED is the only central bank currently with a tightening bias, the news that other G-7  rates could all rise in unison was negative for the Greenback.

The USD Index lost over 2% for the week including a 1.6% loss to the Aussie Dollar. The AUD/USD tested the March high of .7730 before falling back to .7680 at the New York close.

The Aussie also got a lift this week as former RBA board member John Edwards expressed his view that the RBA will likely initiate eight 25-basis point rate increases over 2018 and 2019. Considering the pressure this would put on the local mortgage market, we don’t agree with Mr Edwards’ forecast.

The central bank will meet next Tuesday and we expect RBA chief Phillip Lowe to walk back on those comments and maintain the stance that any strength in the AUD/USD is a headwind to domestic growth and exports.

In the bigger picture, it’s likely that the narrowing yield differentials between US and Aussie rates will continue to favor the USD over the AUD.

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

YANK is an inverse ETF with a market weighting of 2.5%. This means that a 1% move in the AUD/USD will translate into a 2.5% move in the unit price of YANK.

With a current unit price of $13.85, we consider YANK to be a reasonable addition to client portfolios. We estimate that when the AUD/USD trades back to the January low of .7160, the unit price will be around the $16.50 level.

BetaShare ETF: YANK

 

ETF Update: OOO Is Tracking Crude Oil Higher

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Prices of West Texas Intermediate (WTI) Crude Oil moved higher in New York trade, extending the recent rebound to a sixth straight session after a decline in US crude production eased concerns about deepening oversupply.

WTI futures settled up 19 cents at $44.93 per barrel after hitting a two-week high of $45.45 earlier in the day.

Supply disruptions in the Gulf of Mexico from Hurricane Cindy, as well as, increased demand for gasoline in front of the long July 4th weekend have also supported the move higher in Crude.

On June 23, we posted a report suggesting Crude Oil prices had become technically oversold and a reversion higher was likely. We are still looking for a extension of the move higher into the $46.50 area.

Investors looking to profit from higher Crude Oil prices can look to buy the BetaShare ETF with the symbol: OOO.

We started adding OOO to client portfolios in the $12.30 area.

We calculate that when WTI trades back to $46.50, the price of OOO will be near the $14.60 level, which is a reasonable area to take profits.

BetaShare ETF: OOO