As an update to our recent Chart Watch on the XJO, we highlight again the lower high structure that has now formed. We were expecting a bounce into the 5790 – 5850 level before further selling pressure. Yesterday the price action hit resistance at 5796 and today’s open looks weak against a positive lead from the US.
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The market remains optimistic about future earnings growth for Boral. The recent Headwater acquisition in the US provides Boral with added exposure to the US housing market. Domestically, Boral is well placed to benefit from the an increase in large scale infrastructure projects.
We feel some caution is warranted though, given the weaker trends emerging is both US and domestic housing construction data. The stock trades on 19x forward earnings and less than a 4% yield.
FY18 revenue is likely to be $5.8b, EBITDA $1.15b, Net Profit $490m and DPS of $0.29.
The XJO chart is showing the first lower low structure we’ve seen for some time.
The broader trend, which has been in place since February 2016 is likely in the early stages of breaking lower. Any bounce higher from last week’s selling, is likely to be limited and investors should look to protect their portfolios.
New selling will likely occur within the range of 5790 and 5850, creating a lower high formation as a strong sell side signal.
With the recent sell-off in commodity names, the Algo Engine has triggered buy signals in a number of big and small cap companies.
Our preferred resource allocation remains BHP, over other alternatives. However, it’s worth taking note of the recent buy signals in RIO, FMG, IPL and in OOO, the BetaShares Oil ETF.
We look to take profit in BHP at $25, after buying at or near $22.50.
Our Algo Engine has triggered a buy signal on the Veneck Vectors Australian Bank ETF. ASX code: MVB
MVB made a low on Friday at $27.56 and we may see buying interest pickup in the early part of next week.
Investors who take this trade should work a stop loss order below $27.50.
JHX reported FY17 results that were below market expectations. EBIT
of US$354m & NPAT of US$249m
At 27x earnings and a 2.6% dividend yield, combined with last week’s deteriorating new home sales data in the US, JHX has been one of our high conviction shorting opportunities.
Chart – JHX
Goldman Sachs has sold off $40 since the high created on the 1st of March. The chart image below shows price action is now finding minor support within a weakening short-term channel.
We’ll continue to watch the chart pattern unfold with anticipated resistance back up at $230.
The relevance of tracking GS for local investors, is it may provide an indication as to when our local banking & finance stocks will find new selling pressure, should they have a minor bounce from yesterday’s lows.
The IVV is an iShares ASX listed ETF that provides exposure to the S&P500 index of stocks.
Our Algo Engine has triggered multiple buy signals over the past 3 years and so far, no sell signals. However, with the index at 18x earnings and deteriorating global economic data, we feel now is an opportunity to lock-in gains and wait for the next Algo Engine buy signal.
The US 10 YR treasuries have fallen from 2.62% yield, to now trading at 2.23%. US economic data is deteriorating and the bond market is suggesting that a June rate hike is now less probable.
Lower bond yields make it more difficult for banks to expand their net interest margins.
The following graphs show the recent trends in GE and Goldman Sachs. We’ve been following GE since January as a leading indicator of the headwinds facing global industrial companies. We’re now seeing this weakness manifest in the beginning of a more broad based equity market sell-off.
The Dow Jones Index has broken the first support level at 20,800 and the next level will be 20,380.
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