Softer US Yields Could Lift Local Names

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The recent move higher in longer-dated US Treasuries has created a headwind for some of the yield sensitive names listed on the ASX.

Over the last 10 days, the US 10-year notes have risen from 2.28% to just under 2.50%.

This 10% move has also lifted the 2yr to 30yr spread from 85 basis points to a full 100 basis points.

The impact on local shares has been a 4.5% drop in TCL and a 3.3% fall in SYD.

Looking forward, it’s reasonable to expect the US yields to soften and the yield curve to flatten.

Given the current correlation to the local shares, we see the US flattening trade as potential positive for the local names such as TCL, SYD, WFD and GPT

US 2yr versus 30yr spread

 

Will Domino’s Deliver In 2018?

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Shares of Domino’s Pizza are up over 2% at $45.60 as a research report from Morgan Stanley forecasts the stock rising to $53.00 over the next 12 months.

The report suggests the recent fair-wage claims and complains from franchisees have been overstated in the sell off in the share price.

The report also points out that DMP is the third most shorted stock on the ASX, with 16.5% of the company in the hands of short sellers.

From a technical perspective we see a key price hurdle in the $50.00 area, which is the bottom of the price gap lower on August 11th.

Short-term traders looking to buy DMP should place a stop around the $44.80 level.

Domino’s Pizza

 

Negative Divergence In The XJO Index

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The last time our ALGO engine gave a signal in the XJO Index was on September 8th, 2016; this was a buy signal at 5227.

It isn’t surprising that there hasn’t been a more current signal considering that the index has traded in a wide, sideways trading range between 5650 and 5960 during 2017.

However, the recent break above 5960 has the technical structure of a “price exhaustion pattern” and could signal a correction lower into the new year.

Looking at the internal momentum indicators on the daily chart, the November high of 6052 had a corresponding RSI reading of 80.00.

Interestingly, the higher print from December 20th at 6083, had a lower RSI reading of 63.00.

This divergence in momentum suggests the index is nearing a medium-term high and could offer a shorting opportunity. The next key support level is the November 16th low at 5916.

The XJO Index is available to trade on our SAXO Go platform as both a CFD and a futures contract.

XJO Index

 

AUD Boosted By Last Week’s M&A Activity

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Last week’s Merger and Acquisition activity was a key driver in the Aussie dollar’s move from .7510 to .7690.

Tuesday’s Westfield deal for AUD 32 billion combined with Zurich’s announcement that it will buy ANZ’s life insurance business for AUD 2.85 gave the local currency a bid tone for the week.

All together, the flow was about $9 billion of AUD/USD that needed to be bought to cover the hedging aspect of the M&A transactions. This was enough to push the AUD/USD to .7690 before offers capped the move.

With this buying support absorbed into the market, the technical picture in the AUD/USD looks to be weakening with the longer-term down trend the path of least resistance.

We see the next area of support in the .7565 area. A break of the December 11th low at .7510 could trigger a quick move back to the .7300 handle.

Some of the ASX stocks that would benefit from a lower AUD include: RHC, NCM, QAN and TWE.

Ramsay Health

Newcrest Mining

QANTAS

Treasury Wine Estates

 

US Tax Reform To Lift TWE

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With about 42% of its revenue and EBIT from the USA, TWE’s bottom line will get a boost from the pending reforms to the US tax code.

On the top line, TWE should be able to deduct interest payments on their USD dominated debt, which combined with accelerated depreciation, could boost NPAT by about 8%.

From a technical perspective, we see scope for a move higher on a break of the $16.30 resistance level. As such, we would look to take profits on long positions at or near the $16.50 area.

Treasury Wine Estates

 

ALGO Buy Signal For Inghams Group

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Our ALGO engine triggered a buy signal for Inghams Group at $3.42 into yesterday’s ASX close.

From a fundamental perspective, ING’s most recent 12-month earnings report showed the company made $59.1 million, which was 85% higher than the previous 12-month period.

The stock has traded as high as $3.90 on October 9th, and we expect to see good buying support in the $3.25 area for a move higher into Q1 2018.

Inghams Group

 

ALGO Update: Stay Long Sydney Airport

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Our ALGO engine triggered a buy signal in SYD on August 2nd at $6.85. Since then it’s traded as high as $7.60 and is currently in the $7.30 area.

We hold this stock in the model portfolio and feel the fundamentals of the business continue to point to higher prices.

Recent reports show that more than 43 million travellers will fly into Sydney this year. That’s almost double the 23 million per year when it was privatised in 2002.

We have a $8.25 price target on SYD and will look to write cover calls in that area to enhance portfolio returns.

Sydney Airport

 

ALGO UPDATE: Stay Short Suncorp

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Our ALGO engine triggered a sell signal in SUN on November 29th at $14.25.

After trading in a sideways pattern for over two weeks, the share price has moved lower and closed Friday’s session at $14.05.

The internal momentum indicators are pointing lower and a break of the $13.85 level will likely accelerate the technical down move into the $13.20 area.

With a PE ratio of 17 and a  price to earnings growth ratio of 1.69, we consider a fair value price just above $13.00.

Suncorp

 

 

Newcrewst Mining Has Been Added To The Model Portfolio

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Our ALGO engine triggered a buy signal on Newcrest Mining at $21.90 yesterday.

Clients and subscribers were notified via email that NCM has been added to our ASX Top 50 portfolio listed in the Premium section of the blog.

The recent slide in Spot Gold prices has impacted domestic Gold producers unevenly. Shares of the smaller firms like SBM, EVN and SAR have held their value and even firmed over recent sessions relative to NCM.

We believe that NCM’s recent sale of its 89.9% stake in Bonikro mine in Cote d’Ivoire has caused some short-term pressure to the share price value investors will support the share price in the $21.80 area.

The current momentum indicators are in oversold territory and the ALGO engine flagged the “higher low” formation based on the October lows near $20.90.

As the price of Spot Gold moves back into the $1300 area, we expect NCM shares to move back into the high $24.00 handle.

Newcrest

 

 

ALGO Signal: Buy The Dip In InvoCare

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Our ALGO engine triggered a buy signal for InvoCare at $16.40 on yesterday’s ASX close.

The stock looked very expensive when it posted a high trade of $18.10 on December 4th. Since then the company has been the target of several negative analyst’s reports and the share price dipped to $16.25 in early trade today.

The ALGO engine has flagged the “higher low” pattern based on the low price in the $13.00 area back in early August.

We don’t expect the IVC share price to rally back to the $18.00 area in the near-term.

However, we believe with the internal momentum indicators in oversold territory, a move back to the $17.35/40 area is a reasonable trade for both share investors and CFD traders on our SAXO Go platform.

InvoCare