The ALGO engine triggered a sell signal for Flight Centre (FLT) yesterday at $30.95.
After posting a high of $31.20 on February 15th, FLT fell to $28.00 over the following two weeks. We see the possibility of a similar price pattern emerging.
The ALGO engine has done a good job of picking the ranges on FLT.
As such, we will wait until the short-term momentum indicators confirm the direction before taking action on the trade.
Flight Centre
Between increased hostilities in Syria, and a US Navy carrier group off the coast of Korea, geopolitical risk lifted Gold over $20.00 in overnight trade.
After trading down to $1195.00 on March 15th, the yellow metal has moved $80.00 higher and is now trading near $1275.00.
With momentum indicators approaching over bought levels, we see scope for a pullback to the $1265.00. However, over the next few weeks, a move back to the November 2nd high of $1310.00 looks like a reasonable target.
Over the last few weeks, we have been buying both shares and call options on Newcrest Mining and the GDX Gold Miners ETF.
Chart Newcrest
Yesterday’s 5% rally in BHP left a many investors wondering what was driving the shares on a quiet Monday session.
The main reason was a report that Elliott Advisors suggested the company could unlock shareholder value by spinning off US Petroleum and collapse of the LTD and PLC shareholdings.
The idea is that the Elliott plan would accelerate the release of value and franking credits. Of course, the $6.00 rally in Crude Oil since March 27th has also been a boost to BHP shares.
Our ALGO engine generated a buy signal for BHP on March 13th at $23.65.
We remain cautious of the extended valuation of equities, in general, and suggest placing a stop in the $24.40 level on long positions.
Chart BHP
When we last updated Ramsay Health Care (RHC) on March 7th, we pointed out that the strong earnings potential and solid dividend growth were reasons for holding the stock.
Since then, RHC has moved just over 5% higher and has a bullish technical structure.
The current price is comfortably above the 30-day moving average at $67.75 and we have a medium-term target of $73.00.
Ramsey Healthcare
With the financial media focused primarily on the US missile strike in Syria, many investors didn’t notice the 7% drop in Iron Ore prices on Friday.
The spot price of Iron Ore fell $5.50 to $75.45 yesterday. This is over 20% lower than the February 21st closing price of $95.00.
Making matters worse, the September contract for Iron Ore on the Dalian exchange also closed 7% lower after trading down to its 8% limit for most of the session.
The sharp fall in Iron Ore will have its biggest impact on BHP, RIO and the Aussie Dollar.
The AUD/USD closed the New York session at a 1-month low of .7495. This is the first close below .7500 since early January and opens up the next support level at .7425.
Investors who would like to profit from a lower AUD/USD can look at the BetaShare YANK Exchange traded Fund. This is an inverse fun which gains value as the AUD/USD falls.
Call in for more details about YANK and the other ETFs that we cover.
The US Non-Farm Payroll data will be released at the start of today’s NY session. With US Stocks reacting negatively to the news of the FED’s plan to begin reducing their balance sheet, attention will be focused on the interest rate aspect of the report.
The consensus headline number is expected at 174,000 new jobs with Hourly Earnings expected to climb by .2%.
The cause and effect logic to the data will be that a stronger report would be negative for stocks, since it would support the odds of another rate hike in June.
Both the DOW 30 and SP 500 indexes are trading below their 30-day moving averages and could extend lower on stronger data. We see downside support at 20,300 and 2315, respectfully.
A large miss in the data would likely lift US stocks on the notion that the FED will remain on hold until August.
US stocks ended lower on the day after a sharp, mid-session reversal was triggered by comments from the US Federal Reserve.
It was reported that during the last FED meeting, when rates were lifted by 25 basis points, some voting members viewed US equity prices as “quite high relative to standard valuation measures” and that the central bank should take steps to begin trimming its $4.5 Trillion balance sheet.
The DOW 30 posted its largest intra-day downside reversal in 14 months. After an early gain of almost 200 points, the DOW closed down 41 points and near the session low.
Volume was very heavy at 7.5 billion shares compared to the average volume of 6.5 Billion shares over the last month.
It’s worth noting that the process of reducing the balance sheet acts as an accelerator to tightening monetary conditions and is generally not bullish in an over valued market.
FED Balance Sheet
After posting a four-month low at $47.10 on March 27th, WTI Crude Oil has rallied to close at $51.10 today.
Shares of Oil Search have followed crude higher moving from $6.90 to a three-month high of $7.34 in early trade.
We see scope for a move back to the $7.70 level over the near-term. This would represent a “double top” technical pattern which usually serves as price resistance.
In this case, a move up to $7.70 would give investors a chance to take profits on long positions or write covered calls to enhance portfolio returns.
We recognize that the energy sector has some level of upside momentum, for now, and stocks like BHP and Origin on our buy side radar.
Chart Oil Search
The share prices of RIO and BHP are both approaching key support levels which could create investment opportunities.
The are both trading below their 30-day moving averages but are close to support $58.80 and $23.50, respectfully.
The attached charts show that these support line have held and became good buying levels for a move higher over the last six months.
However, we are mindful of the importance of exports to China for both of these companies. Overnight, China’s five largest banks reported earnings which showed steady results but increases in the percentage of non-performing loans tied to real estate.
It’s worth noting that Chins’a top five banks are considered the largest in the world in terms of assets. A sharp contraction in any of those five could trigger weakness in RIO and BHP
There has been plenty of Central Bank action on interest rates around the world but none of it coming from the RBA.
That trend is very likely to continue at tomorrow’s RBA board meeting where the official cash rate is expected to remain at 1.5%.
Australian monetary policy is currently stuck between underlying inflation, which is below target, and accelerating house prices.
The market may move on comments about the Aussie Dollar or the banks recent out-of-cycle rate rises, and that APRA has again slightly tightened the terms on investor lending.
As such, real estate names will be in focus after the announcement.
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