Gold Trades Higher After Golden Week

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A few weeks ago, we posted a report outlining the correlation between the Chinese Golden week holiday and the price of spot Gold.

Over the last four years, the price of Gold has dropped into, and during, Golden Week and then traded higher once the Chinese markets came back online.

As the chart below illustrates, spot Gold posted a low of $1262.00 last Friday and has since lifted by over $30.00.

We continue to look for Gold to trade higher into the end of the year and re-test the the $1350.00 level.

As such, we like long positions in NCM, EVN and SAR. 

Spot Gold

 

Newcrest Mining

Evolution

Saracen

Limited Upside In Woolies

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Shares of WOW traded down to $24.40 last Tuesday; nearly reaching the key support level of $24.20 noted in our October 5th blog.

Prices have bounced since then as wholesale food reports show that deflation is returning to the fruit and vegtable market.

Last week’s report showed a -2.3% price growth, which improves the margins on WOW’s private label brands, as well, as fresh produce.

We see the next level of price resistance in the $25.60 area and consider WOW reasonable buy/write opportunity at current levels.

Woolworths

 

 

ALGO UPDATE: AMP Is Approaching Resistance

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One of Australia’s largest money managers, AMP, has caved in on the pressure from index and computerized trading and has dropped their fees, and is looking to sack most of their active equity managers. 

The bulk of the $29 billion in funds the firm now manages will be rolled into lower-cost strategies including existing quantitative funds within AMP Capital. 

Our ALGO engine triggered a buy signal for AMP at $4.80 on August 21st.

We see key chart resistance in the $5.25 area and would look to exit long positions at, or near, that level.

AMP

 

Class Action Claim Filed Against CBA

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After a month of speculation, law firm Maurice Blackburn filed a statement of claim in Federal Court yesterday saying the CBA board knew of potential AML breaches in 2015 and failed to tell shareholders.

It’s estimated that the class action could cost the bank hundreds of millions if the suit proves successful. This doesn’t include the AUSTRAC litigation which will begin in November.

Shares of CBA are down fractionally at $76.40  in early trade. Our ALGO engine triggered a sell signal for CBA at $84.20 on July 4th. Since then the shares have posted a low of $73.20 on September 8th.

It’s our base case that the recent recovery in the share price is corrective and that slower loan growth combined with the potential litigation will weigh on the shareprice

Technically, the next key support level is found at around the $71.00 level.

Commmonwealth Bank

 

RIO Extends Share Buyback Scheme

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Shares of RIO Tinto have reached a one-month high of $70.40 following their announcement that they will return a further USD 2.5 billion to shareholders following the sale of Coal and Allied.

This will lift the total shareholder returns to USD 8.2 billion ($4 billion in share buybacks and $4.2 billion in dividends).

Considering that the share buyback scheme will be done off-market, its likely that the shares could be priced 8 to 10% below market value.

Nevertheless, with RIO’s balance sheet getting a shot in the arm, we expect additional returns in dividends in February 2018.

Our longer-term target on RIO is in the $76.00 to $76.50 area.

Rio Tinto

Sonic Gets A Boost

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After trading as high as $24.50 on June 29th, shares of SHL dropped over 15% to post an intra-day low of $20.60 last Thursday.

The company got some good news last week when they won an exclusive contract to provide a pathology laboratory in two of London’s hospitals.

The contract has a term of 12 years and is expected to contribute over 12 million Sterling in revenue per year.

Looking at the internal momentum indicators, the share price is slightly oversold and has upside potential to the $22.70 area.

We consider SHL a reasonable buy/write stock which offers price appreciation and enhanced cash flow with the derivative overlay strategy.

Sonic Health

 

TWE Is Looking To Expand

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Treasury Wine Estates has been in acquisition  talks over the past week with premium winemaker, Robert Mondavi, in the United States

Robert Mondavi Wines, which celebrated its 50th anniversary last year, was bought by beverage giant Constellation Brands for about $US1 billion in 2004.

While it is unclear how progressed the talks with Treasury are, there’s no question that Robert Mondavi would be an excellent fit. The company has plenty of contracted grape supply in the ultra-premium Napa Valley wine region.

Shares of TWE found support just above $13.50 and closed the week 2.5% higher at $14.08.

We see scope for reasonable price appreciation in TWE above $14.50 and will look for an ALGO buy signal at lower levels.

Treasury Wine Estates

XJO UPDATE: Volatility Is On The Rise

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Trading  in the XJO 200 Index posted another week within the sideways “Flag” pattern bounded by the June 15th high of 5834 and the June 8th low of 5637.

It’s worth noting that 4 of the 5 trading sessions last week saw intra-day net changes of almost  1% from open to close (2 days higher, 2 days lower).

This increase in daily price volatility suggests a resolution to this 4-month indecision pattern may occur sooner, as opposed to later.

With the series of “lower highs” since the August high of 5810 still the dominant technical component, we believe the break will point to the downside with the next support level near 5570.

XJO 200 Index

Crude Slides Lower On Saudi Comments

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Spot Crude Oil prices dropped over 2% after comments from a Saudi official that the November OPEC meeting may not result in an extension to the current production cut agreement.

This announcement comes as the return of supply from Libya and increasing rig counts in the USA have kept prices under pressure.

For the week, the front month November Crude Oil contract fell close to 5%.

Technically, Friday’s settlement at $49.25 is the first close below the 200-day moving average since September 10th, which suggests near-term range extension to the downside.

Our ALGO engine triggered a sell signal in OSH on September 28th at $7.10, and a sell signal in STO on September 26th at $4.20.

These trades have been slow to develop but we maintain our downside targets of $6.30 in OSH and $3.35 in STO

Oil Search

Santos

Ansell Gets A Boost From The Lower Aussie

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Since posting an intra-day low of $20.30 on August 15th, shares of Ansell have traded 12% higher to reach $22.81 in early ASX trade today. 

The August low coincided with their FY17 earnings report. Part of that report focused on the level of earnings based in USD and how an stronger AUD could dampen results. 

The AUD/USD has now dropped over 5% since trading at .8125 on September 8th. As a result, ANN shares have pushed higher. 

We currently see ANN trading at 18X earnings and estimate FY18 EPS around USD .95 cents. 

As such, we consider ANN a good buy/write strategy up to $23.50 to increase cash flow and enhance portfolio returns. 

Ansell