Please find below a brief summary of the morning meeting notes across US and Australian Markets. The commentary has been provided by David Gray, Gleneagles securities.
• Rally in markets on Friday support my continued short-term view of S&P 500 recovering towards 2600.
• The specific target now coming to surface is 2630 – being the Fib retracement of the latest sell off.
• The prior rebound in Nov reached the Fib retracement perfectly of the October sell off so by all means this rebound can overshoot my initial 2600 target.
• US bond yield reversal also in keeping with Friday’s view that yields were oversold and primed for a reversal. I expect yields could reach 2.80/2.85% (10 yr basis) before declining once more with S&P 500 peak at 2600/2630.
• Incoming trade resolution and earnings season could combine to leave this market in a short-term positive – then neutral phase – for a couple of months before rolling over once more – possibly in March/April. No need to rush to get short just yet.
• High Yield and junk bonds had a very impulsive move higher on Friday that will take considerable time to give up. A lot of time was spent working to an extreme low, the rebound will and has been aggressive (bonds just starting while equities have been doing so for over a week). A lot of “new” bad news will be required to resume the downtrend. All existing shorts will need to be squeezed out before we can head lower again. This is typical of evolving downtrends, they fall very quickly, reverse sharply and then take time to start to deteriorate again.
• AUD$ already hitting the rebound target of 0.7100+, could aim for 0.7200
• Crude trying, energy equities staging nice rebound. Crude short term “risk on” target of $52
• Gold/silver treading water marginally lower. Gold equities marginally lower. My comments on Friday may be late in this first rally, but I believe after a risk on pause, they resume moving higher. Gold SHOULD NOT retreat very much if it is going to enjoy a good 2019. Same for gold equities and my preference for SLR/DRM and NCM.
• General Electric – big move on Friday after hours with rumors of Apollo going to bid for the Jet engine business which could be worth $40 Billion. GE market cap $71 billion. Provide zero value for the GE Finance arm, but add GE healthcare, Power, etc I obtain a rough break up value easily north of $110 billion (accounting for debt) or $12.80/share. Value is $10/share if you were to believe there is a $20 billion “hole” in the GE finance division. Still 20% above Friday close in a worst case scenario.
• SPI – Friday night broke a beautiful RSI downtrend that stretches back to May keeping the immediate focus on the 5800 target. Difficult to find specific great stocks – everything is either a short covering rally (to short again – eg retailers, QAN, DHG, REA etc) or is purely a trading buy for a week or two. To me the index is best at this point to be long, as we have seen many “confessions” and easily could see more from individual companies before reporting season. The Australian market is a minefield at the moment and the safest “general long position” is the index.