Welcome to our first Morning Review video report. We look at 11 buy-side ideas, 2 short positions and 3 buy-writes.
The video runs for 6 minutes and if you’d like to discuss the ideas presented, please call our office on 1300 614 002.
Shares of CBA have started the week with a firm tone as Australia’s biggest bank announced a replacement for outgoing CEO Ian Narev.
The current chief of Retail Banking, Matt Comyn, will take over as CEO on April 9th.
It’s worth noting that the retail section of the business has been hit with a series of problems, including Anti money laundering allegations which totalled close to $1 billion over 5 years.
The bank will announce its results for the half year ended 31 December 2017 on Wednesday, 7 February 2018.
Our ALGO engine triggered a sell signal for CBA on November 15th at $81.50.
With uncertainty growing in the domestic banking industry in general, we prefer a short bias for CBA and see price resistance in the $79.35 area and the next downside support level near $77.20.
CBA
The XJO has formed a “higher low” formation at 5991 and the short-term momentum indicators have turned positive.
With most ASX200 constituents trading on extended multiples, we feel the big four banks will need to find buying support, in order for the index to trade higher.
Any move higher from the 5991 low will likely be moderate and index investors can consider the GEAR ETF to gain additional leverage.
Our Algo Engine triggered a buy signal in the GEAR ETF on 17th January at $22.66.
Stop-Loss orders are recommended at $22.45.
XJO
GEAR (ETF)
Shares of QAN have had a good start to 2018.
After slipping as low as $4.77 on January 10th, the share price has rallied over 10% and closed the week just off its 1-month high near $5.25.
This move is made even more impressive against a backdrop of rising fuel costs and a stronger Aussie Dollar.
And while the internal momentum indictors aren’t reflecting an overbought condition, we believe that the share price is susceptible to pullback into the $5.00 support area in the near-term.
We added QAN to our ASX Top 50 Model Portfolio in July of 2017 at $5.25 and our ALGO engine triggered a buy signal in the stock on December 8th at the same price.
QANTAS
ASX reports its half-year earnings on the 15th of February.
The consensus expectations are for NPAT to increase by 4% to $220 million and the company to declare a interim dividend of $1.03.
This places ASX on a forward yield of 3.7% and we see upside potential in the stock.
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Since posting an intra-day low of $55.80 on December 6th, the price of West Texas Intermediate (WTI) crude oil has rallied almost 20% to hit a 3-year high of $66.60 in NY trade last night.
The sharp rise in WTI has had 2 primary tailwinds: a seasonal drawdown of crude oil in storage and a 4% drop in the USD Index.
However, this week’s events could diminish, or possibly reverse, those 2 market impulses.
According to the American Petroleum Institute (API), the amount of WTI in storage has dropped for 11 consecutive weeks. This week’s drawdown was 1.1 million barrels compared to an expected reduction of 2.3 million barrels.
In addition, the recent rise in WTI has seen the US rig count rise from 789 in early December to 939 this week. More production from rigs online will likely break the string of weekly drawdowns in the near-term.
With respect to the USD, Mr Trump told CNBC yesterday that the Greenback will strengthen over time and that recent remarks made by Treasury Secretary Steve Mnuchin about a weakening USD were misunderstood.
Our ALGO engine currently has a sell signal in OSH from the $7.60 area. A material correction in the WTI price could see the stock trade back to November support level near $7.00.
Oil Search
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Shares of Medibank Private have reached a new all-time high of $3.38 as the Federal Government approved a 3.95% increase in fees for calendar year 2018.
The news was a shot-in-arm for the private insurance provider whose shares have gained over 6.5% in the last 7 trading sessions.
Since our last ALGO buy signal in May at $2.73, the stock has picked up almost 24%. MPL shares are currently trading at 21X earnings on a 3.6% yield
Internal momentum indicators have now reached overbought territory and we suggest exiting long positions at, or near, the $3.30 level.
We will look for a pullback in MPL to reenter long positions and update accordingly.
MediBank Private
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