Algo Signal – Buy Graincorp
Our Algo Engine has triggered a buy signal in GNC. The price action has now retraced back to $9.00 and filled the price gap from mid-May.
Chart Update – XJO
The S&P/ASX 200 Index finished the week up 1.08%.
The best performer was the Energy sector, up 2.7% & the worst performer was the Health Care sector, down 1.1%.
The XJO continues to trade below the recent 5850 “lower high” formation.
SYD, TCL And GPT Show Upside On Rate Reversion
Over the last two weeks, yield sensitive names like SYD, TCL and GPT have all dropped over 10% from recent highs.
One of the main drivers has been the change in interest rate expectations from G-7 central bankers and the subsequent rise in short-term paper.
Moving forward, we see more likelihood of G-7 rates reverting lower within the year’s range and providing upside potential in the stocks above.
Other stocks we like on the basis of lower local rates are: AMC, WOW and MPL.
We see reasonable upside potential in the names and will employ the derivative overlay strategy (selling covered calls) to enhance the portfolios returns.
Transurban
Sydney Airport
General Property Trust
Algo Signal – TWE
Our Algo Engine flagged a recent buy signal in TWE at or near $12.30.
The recent share pullback creates an attractive entry point. Asia demand looks strong and FY18 earnings should see underlying profit increase over 20% to $360 million.
We believe TWE is still in the early stages of building a significant business across Asia, which will help to support the “buy on the dip” approach.
Incitec Pivot: Look To Take Profits
On 11th of July we reminded readers of the blog that we viewed the recent Algo Engine signal on IPL, as one our preferred buy-side signals.
IPL today has opened up 6.5% higher and is now up over 10% from the recent low.
Considering the recent volatility in fertiliser prices, we suggest taking profits in the current $3.55/60 price range.
Incitec Pivot
Algo Signal – Sonic Healthcare
Our Algo Engine triggered a buy signal in Sonic Healthcare, following the recent sell-off from $24.60 back down to $22.30.
We continue to see Sonic delivering 6 – 8% EPS growth and a 3.7% dividend yield. The stock is fair value at or near the current price and investors can consider SHL as a suitable buy-write for enhancing portfolio cash flow.
Chart Watch – Dow Jones & NASDAQ
The Dow Jones and NASDAQ charts below show the indices continuing with the “higher high and higher low” formation.
The XJO shows a slightly more bearish pattern, as our local market struggles below the recent 5850 high.
ETF Update: Stock Indexes Brace For FED Testimony
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 Buy Signals – AWC & BSL
Recent Algo Engine buy signals in BSL and AWC have performed well, with prices rallies of 20%+ in the past few months.
China has been ramping up production of both alumina and aluminium in the lead-up to potential capacity cuts. Alumina Ltd (AWC) is potentially the largest beneficiary, given it is a pure-play on the industry.
Rio Tinto and South32 also seem well-placed to benefit. We will reconsider these names on the next Algo Engine buy signal.
BHP – Approaching Our Profit Target
We’ve been buyers of BHP on the recent pullback to $22.50 with an upside target of $25 – $26.
We advise, either locking in gains within this price range, or alternatively, selling at-the-money call options into September.
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