ETF Watch – Resources
We’re watching for support building on the recent low in both the OOO BetaShares Crude Oil ETF and the broader based QRE BetaShares ASX200 Resources ETF.
XJO – Chart Update
The XJO continues to push the upper range of the recent consolidation band. If the resource names can hold their current higher low formation, we may see further short-term strength in the index.
Algo Sell Signal For Transurban
The Algo Engine triggered a sell signal in Transurban (TCL) yesterday at $11.72.
The stock has rallied over $1.00 since last week’s announcement that tolls to pay for an upgrade of the Inner City By-Pass in Brisbane.
From a broader perspective, TCL has traded between the $12.65 high made in August, and the low of of $9.45 posted in early November.
The $11.72 level is a bit higher than the 50% retracment of of this range, but we see stiff chart resistance at $12.00. We see the first level of support in the $10.80 area.
We own TCL in client portfolios from lower levels and we’ve been bullish in recent weeks on TCL and utilities, in general. This view has been predicated on the faltering backdrop for the the global relation trade.
The rally in TCL will soon stall at near $12.00 and investors should sell call options into September, with a view towards maintaining exposure to the upcoming $0.25 dividend in June.
Chart-Transurban
XJO – Chart Update
The XJO remains in a bullish “higher high & higher low” formation. Valuations are stretched and stop-losses on a reversal back through 5640 is a prudent risk management strategy.
Dow Jones – Key Chart Signals
The Dow Jones has found short-term support in the higher low structure at 20,412. A break below this in the next day or two will be negative for US equities.
For the time being, we’re seeing buy signals from the Algo Engine in some of the beaten-down key US financials, Goldman Sachs, JP Morgan, Morgan Stanley & and Bank of America.
BHP & RIO – Where is Support
Our Algo Engine has triggered multiple buy signals across the major resource names, both in metals and in energy.
With the peak to trough sell-off among the sector extending between 13% – 20% it’s likely we find some value investors stepping back in to the market.
We’re comfortable with select exposure in BHP, RIO, S32, WPL, OSH, ORG but caution investors that stop-losses below the recent lows will be a prudent way of managing risks.
It seems unlikely that any buying interest from this level will carry the above names to new near-term highs. We’re of the view that a corrective bounce will top out at 5 – 7% above recent lows
We see the recent volatility in oil and iron ore, being primarily driven by US Dollar swings rather than related to any fundamental factors and remain cautious of negative news flow from China’s unsustainable debt problem within their shadow banking industry.
Qantas – breaking out
QAN has enjoyed strong share price performance since the release of its
1H17 results on 23 Feb 17. This has been partly supported by by the share buy-back program which at the current rates will end in the next week or two.
FY18 revenue is forecast to be $16b, EBIT flat at 1.6b, EPS $0.56 and DPS $0.26, placing the stock on a forward yield of 6%.
We’ll watch for the next Algo Engine buy signal on the structural higher low formation.
CSL and Cochlear – Valuation & Earnings Update
CSL trades 27x forward earnings.
FY18 revenue to grow 5% to US$7b, EBIT +18% to US$2.2b, EPS US$3.60 & DPS US$1.70.
This places CSL on a forward yield of 1.8% into FY18.
We own CSL and recommend a covered call into the $130 range to enhance the yield.
Cochlear was recently triggered by the Algo Engine as a buy signal and we update our 12-month share price target to $138 based on a PE of ~27.5x. and a forward yield of 2%.
Risks remain associated with COH reimbursement changes, regulatory
intervention and adverse currency movements. However, momentum favors the stock at present.
Core Holdings
Sydney Airports continues to perform well….
We own Sonic Healthcare as a key holding in our client portfolio’s.
We own Transurban in or model…..
Amcor is a core buy-write that we’re holding…..
GPT and WFD are our preferred property (REIT) holdings….
US 10-year Yields
The Dow Jones 30 posted it’s 7th straight lower close for the first time since 1978.
As a result, the US 10-year bond yields fell to a 1-month low of 2.38%. An increase in equity market volatility could could lead to another 10 to 15 basis points of downside on the yield.
Some of the local names that have moved higher on the lower yields have been SYD, TCL, WFD and, to a lesser degree, TLS.
It’s likely interest rate stabilization will work as a near-term cap on these companies and allow for a covered call strategy to enhance the portfolio returns
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