Low conviction ahead of G20 summit

James Gerrish

Market Matters

The market cooled today, mostly in the afternoon session although nothing too sinister – volume was light and conviction was low ahead of the G20 later in the week plus of course the much anticipated Trump/Xi meeting. Real estate did best while we saw some tentative profit taking among the iron ore names – something we alluded to in the weekend note. 

Markets have clearly run hard and as we approach the EOFY, this recent strength means that MM is in overall “sell mode,” looking to increase our cash position and/or move the portfolio (s) to a more defensive stance. That said, price action/momentum has continually told us to remain patient and for now we’ve tweaked towards more defence (gold) rather than increasing cash.

Overall, the ASX 200 lost -7 points or -0.11% to 6658. Dow Futures are trading down -17 points/-0.07%.

ASX 200 Chart

ASX 200 Chart


Gold stocks: Some interesting moves in the gold space today with stocks strong in parts, but ultimately most traded lower into the close. Newcrest (NCM) added +0.56% to $32.30, Evolution (EVN) added +0.93% to $4.34 while Saracens (SAR) roared up +6.06% to close at $3.85, although it was stronger early on printing a $3.97 high. There is a lot of attention in the gold space at the moment given the precious metal has broken out from a long-term range, and gold money is often momentum money. The race to the bottom in terms of interest rates is forcing defensive allocations to look elsewhere – away from bonds and into another store of safety, gold. SAR topped the leader board today.

Saracens Minerals (SAR) Chart

Here’s a quick recap of what we suggested in the weekend note: Commodities had a big week last week as they enjoyed a falling $US and increasing tensions in Iran with gold rallying +4.3% and crude oil +9.4%. MM believes gold is only just beginning its breakout to the upside with significantly higher levels appearing likely – we are bullish gold and its respective stocks. Although both the iron ore and gold sectors have enjoyed stellar years we now prefer the precious metal stocks to the bulks on a relative basis from here.

Gold Chart

The chart below shows the NYSE “Gold Bug Index” which we believe is/has broken out with well over 50% upside. Last week’s rally was a surge to be bought not faded in our opinion. NB: The NYSE Gold BUGS Index is a modified equal dollar weighted index of companies involved in gold mining. BUGS stands for Basket of Unhedged Gold Stock.

NYSE “Gold Bugs Index” Chart

Crown Resorts (CWN), +1.83% was upgraded by Macquarie today with the bank running the numbers over the prospect of a takeover from US-listed Melco – you’ll remember Melco, which has casinos in Macau, picked up a 20% stake from James Packer last month for $13. Macquarie believes Melco is on the global growth pathway, and picked $14/share as the FCF neutral price. While any controlling deal is at least 12 months away and subject to regulatory approval, Melco we think has shown its hand here. The analyst did note short-term pressure on earnings – likely why Star Entertainment (SGR) fell -1.48% today. CWN is starting to look interesting again.

Crown Resorts (CWN) Chart

Broker moves;

  • Crown Resorts Upgraded to Outperform at Macquarie; PT A$12.60
  • Metcash Downgraded to Neutral at Goldman; PT A$3.07
  • Metcash Downgraded to Underperform at Macquarie; PT A$2.44
  • Metcash Downgraded to Neutral at JPMorgan; PT A$2.85
  • Sandfire Upgraded to Buy at Canaccord; PT A$8
  • Viva Energy Group Raised to Overweight at Morgan Stanley
  • Newcrest Downgraded to Underweight at Morgan Stanley; PT A$24.25
  • Nick Scali Downgraded to Hold at Wilsons; PT A$6.94
  • Premier Investments Upgraded to Hold at Morningstar
  • Domain Holdings Upgraded to Hold at Morningstar
  • Nearmap Downgraded to Sector Perform at RBC; PT A$4.20
  • Syrah Downgraded to Hold at Canaccord; PT A$1.05
  • OZ Minerals Upgraded to Buy at Argonaut Securities; PT A$10.60
  • Fortescue Downgraded to Sell at Argonaut Securities; PT A$6.43
  • Independence Group Cut to Hold at Argonaut Securities; PT A$4.80
  • St Barbara Downgraded to Sell at Argonaut Securities; PT A$3.23
  • Saracen Mineral Cut to Sell at Argonaut Securities; PT A$3
  • Evolution Downgraded to Sell at Argonaut Securities; PT A$4.01

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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