Algo Buy Signal – Cochlear
Cochlear generated an algo buy signal at $114 and it looks like the price may build a base and trade higher. Apply a stop loss on a break of the $113 December low.
Gold: A Corrective Bounce
Gold has found initial support at the $1120.00 level and has posted a corrective move higher over the last two days.
The yellow metal is now approaching the technical downtrend line near $1155.00, which we feel will offer stiff resistance. The 30-day moving average is currently at $1186.00. The RSI has been in oversold territory below the 30.00 mark for over a month, so some price consolidation is expected before extending lower.
Newcrest Mining is currently 3.5% higher at 17.40. We view this move as corrective and would expect sellers to return at , or around, the 18.60 level.
Incitec Pivot Ltd
Shares of Incitec Pivot posted a 10 month high of $3.55 last Friday, and could test chart resistance near the $4.00 mark in the near-term.
The highlight for the chemical firm has been the early success at their their new ammonia plant in Louisiana.
The new facility, which came in below the US$ 850 million budget, has scaled-up to over 80% capacity utilization with nearly 72kt short tons produced between October and November.
We like IPL, as a firm, and the growth potential of the chemical sector into 2017. As such, we will put IPL on our ALGO radar and look to buy on a dip back into the $3.10 support area.
Crown Resorts – Update
Crown Resorts has announced several changes to their strategic business plan to simplify the business and enhance their balance sheet.
The firm has decided to cancel its Alon project in Las Vegas, sell off a major stake in its Macau casino business and cancel plans to spin off its international business.
The company will sell off almost half of its holdings in Melco Crown Entertainment for $1.6 billion, using the proceeds to cut debt, pay a special dividend of $500 million and enable a share buyback of around $300 million. Crown’s share of Melco’s annual net profit dropped by 60% in 2016 to $43 million following a corruption crackdown by Chinese authorities.
We still like the long side of CWN, although our upside target has been lowered from $14.00 to $12.50 following earnings revisions due to CWN’s reduced stake in Melco. CWN currently trades on 10x FY 17 estimated EBITDA and is on pace for a 5% yield for FY 2017.
Caltex Trade Recommendation
Caltex delivered upbeat profit guidance following strong performances in Lytton and Marketing & Supply divisions. Fy17 revenue $16b, EBIT $900m on EPS of $2.30 and DPS of $1.20. This represent year on year underlying growth of around 10%.
The chart below shows the market’s favourable reaction to the updated guidance with CTX rallying $1.40 from yesterday’s session lows. CTX trades on Fy17 PE of 13x and 4% dividend yield.
Here is our strategy recommendation on Caltex…
Buy CTX at market, sell May $32.50 call for $1.00 credit. March dividend will be $0.50+
Total return if exercised 13%+ in 5.5 months.
Mid-Week Review
A quick look at the ASX top 50 following the overnight FOMC meeting.
FED’s 25 basis point increase
The US Stock market slipped lower on the back of the Federal Open Market Committee’s (FOMC) policy announcement today. The market wasn’t surprised by the FED’s 25 basis point increase in the Overnight Fed Funds target, but the “Dot Plot” forward guidance shows policymakers are looking for 3 rate hikes of 25 basis points in 2017.
This view is more aggressive than the 50 basis point move the FOMC discussed back in September, which pushed equities lower and lifted the yield on the US 10-year treasury notes to a three year high of 2.57%. It’s worth noting that the 10-year yield traded at 1.35% in July; which means the yield on the US benchmark treasury note has essentially doubled in less than 5 months.
In her post-announcement press conference, FED chief, Janet Yellen, described the move as a “very modest adjustment”, which suggests this year’s forward guidance may mean another move on rates as early as May 2017.
We don’t see this a trend-changer in the major US stock indexes. However, we do see scope for a near-term correction back to the 19,450 level in the DOW Jones 30 and a move back to 2190 in the SP 500.
Wesfarmers – Limited Growth
Over the last four years, Wesfarmers’ share price has traded in an $8.00 range between $38.00 and $46.00. Although the diversified company has consistently paid out fully franked dividends and has been yielding around 5% over the past few years, the lack of share price appreciation has been a concern for longer-term shareholders.
While the Bunnings division of the company has been gaining market share with the demise of Masters, it seems the market rates Wesfarmers earnings lower reflecting a view that the Coles division faces increased competition from the discount chain, Aldi.
Wesfamers has also entered the UK hardware sector with the acquisition of Homebase January of this year, which has yet to show a similar level of success as the Bunnings division.
We don’t expect the limited upside of the share price to improve anytime soon and will continue to employ the covered call strategy on rallies up to the $43.00 area; collecting the franking credits, a dividend of over $2.00 per share and the option premium. Our strategy is helping to boost cash flow to 13%+ per annum
Gold Hits 10-Month Low
Gold traded at fresh 10-month low at 1151.00 as a stronger US Dollar and the prospects of higher US interest rates continues to pressure the yellow metal.
Since trading as high as $1335.00 on November 9th, Gold has lost close to $200.00 per ounce. And while technical indicators are showing oversold conditions on the daily charts, we still see scope to test the $1100.00 support level last seen in January.
Suncorp – Algo Short Signal
Short trades carry more risk than we’d like at present, due to the strength in global equity indexes. We mange this through running tight stop losses.
Suncorp has now filled the price gap and we may see buying exhaust at or near today’s high price of $13.65
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