Monthly Archives: June 2013

Ultimately it is all about China

The Australian market has been volatile over the past month and has underperformed most other international markets. While there are some significant issues both in the USA and in the European Union, the major reason for our market weakness has been the depreciation of the Australian dollar which means that off shore investors in Australian equities were suffering from both a falling equities market and falling Australian dollar. As a result there has been a wave of selling of Australian equities and repatriation of funds by off shore investors.

But superimposed on the issue of uncertain international markets and the falling Australian dollar is the uncertainly about the Chinese economy. Over the past year I have drawn attention to the continuing fall in the major Chinese stock index, the Shanghai composite. A nation’s major equities index provides a window into the health of that nation’s economy. The Shanghai composite index,… Continue reading

Elliot wave update on the ASX200

Two Elliot Wave models for the ASX200 were suggested in a previous blog. Of the two it might now appear that the second model supporting a continuing bull market may well be correct. In this model it is suggested that the five wave pattern which terminated in mid May 2013 should be the end of the first wave of the bull market, with an ABC correction to form major wave 2 to be expected soon.

The correction we have seen over the past month reached the 62% Fibonacci retracement line at 4660 and forms the A wave of this ABC correction. This is shown on the chart below which shows the five wave pattern with projected points for B and C of this corrective wave added.
xjo abc2
It is now a matter of trying to understand the market pattern which might unfold over the next few months. The next chart shows… Continue reading

Fleetwood and fundamental analysis

Fleetwood (FWD) has been a successful company over a long period. Its business is the manufacture of caravans/mobile homes and manufactured accommodation. This latter part of its business means that it has a strong association with the mining services sector which has been savaged by the market over the past few months.

Fundamentalists have noted the value of this stock over the past year and as of mid June FWD shows a 22% yield, and its price is at a 46% discount to its IV. With a ROE of 21% which has now fallen from a long-term ROE of 33%.

I recall attending a meeting in November of last year where a Team Invest representative was talking about value investing and gave FWD as an example of stock which their group was then accumulating. The stated approach was that they would continue to accumulate FWD as the price continued to… Continue reading

Is there value in the banks?

The banks have suffered from the recent market correction, particularly NAB which has fallen by 17 % and the ANZ which has fallen by 16% from their highs of a month ago. On fundamentals NAB is showing a fully franked dividend of 6.3% and at market close on Friday was trading at a 12% discount to its intrinsic value. ANZ is showing a 5.4% fully franked dividend and was trading at a 14% discount to its intrinsic value.

The technical picture is interesting with both stocks. NAB has now retraced more than 50% from its high and the Fibonacci retracement for ANZ which is shown it the weekly chart below is at the 62% retracement.
ANZ
The question now is whether the banks and ANZ and NAB in particular, represent good value or will they continue to fall?

Jobs, bull markets and Central banks

The US markets were down earlier this week with concerns that the Federal Reserve might review its quantitative easing policy and reduce its asset-purchasing programs. So the response to the release of the non-farm jobs data in New York yesterday was very interesting.

The United States economy added 175,000 jobs in May while unemployment increased slightly to 7.6 percent from 7.5 percent the previous month. This was better than the consensus by economists who had expected jobs growth of around 167,000.

This latest jobs report is a continuing saga of a slowly recovering United States economy which of course raises the question of how the Federal Reserve will interpret these data in making decisions to scale back its economic stimulus program? Despite the increase in unemployment and an increase in non participation one might have expected that investors would have been tentative about stocks but the DOW powered on with… Continue reading

The attitude of Australian investors to risk

I am a member of both the Australian Investors Association and the Australian Shareholders Association and have attended meetings and annual conferences of both organizations. In speaking to fellow investors of both organisations there are some trends which I find both interesting and of concern.

The average age of members at the recent Australian Shareholders Association conference was more than 65 and all of those that I spoke to were retired. Most of these investors had a very high exposure to equities and some holdings in term deposits. Very few of these investors hold corporate bonds. For example, in one conference session on fixed interest securities a show of hands in a group of more than 100 persons showed that fewer than 8% held corporate bonds.

The above comments are consistent with studies showing that Australian super funds are significantly more exposed to equities and less exposed to bonds than… Continue reading

Telstra’s share price and risk

With pressure on world stock markets there is little doubt that the Australian market will be down again today (June 6th). Our big dividend payers, the banks and Telstra will undoubtedly suffer again with offshore investors continuing to sell Australian stocks in the light of the falling Australian dollar and adverse comments about the Australian economy. With its fully franked dividend of 6%, Telstra must now be on the radar of local investors despite the continuing market correction. The TLS share price could continue to fall but by how much? The following daily chart of TLS provides the Fibonacci support areas and might provide some guidelines.
tls fib
The Fibonacci retracement area of $4.53 coincides with a previous accumulation/support region and could now be a likely low point for this stock. It is hard to conceive that TLS could fall to the 38% level where the grossed up yield would be in… Continue reading

Telstra, a buying opportunity!

The recent history of Telstra provides a good example of how technical analysis can “provide those insights into human emotion and investor activity which we cannot get from fundamental analysis”. In an earlier blog on Telstra (TLS) on May 2nd I wrote: “Let me speculate that if the RBA lowers the rate by 25 basis points at its next meeting on May 7th, then the price of TLS will be pushed to higher levels and this may well be the high for TLS before a significant correction.”

The RBA did lower the rate on May 7th and subsequently TLS share price reached a high of $5.15 before correcting and as of June 1st it has fallen 8%. Having sold TLS on the RSI technical signal as in the previous post, when will it be time to buy again? The TLS dividend seems very secure and there will be continuing demand… Continue reading

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