weekly market and portfolio journal: 27 september 2013sep 27, 2013 · opportunities where others...

Copyright © Colin Nicholson

Weekly Market and Portfolio Journal: 27 September 2013

Important The stocks discussed in this journal may not be a suitable investment for you at this or any other time. I will only be discussing their suitability, or otherwise, for my investment plan. Likewise, my analysis of the market is intended only as my thinking with respect to my own investment strategy.

You need to assess the relevance of anything in this journal to your investment plan, seeking advice from a licensed adviser if you are not able to make such an assessment for yourself.

I am using weekly market and portfolio journals only as examples to teach the way I think about investing. In doing so, I am neither making nor implying any recommendation for you to invest in any stock mentioned. Nor should my thinking about my own strategy be seen as making or implying any recommendation for you to take, or not take, any action with regard to your own investment plan.

Navigating the Journal Open and use bookmarks in the PDF file to jump directly to sections in this journal:

Format of the Journal The charts in the Charts of Fundamental Data section are updated only at the end of the month.

All other charts are updated each week, even the long-term ones.

Where I have made a change in the text of the journal from the previous week, the changed or additional text this week will be in blue (like the text in this paragraph).

The only exception is the data in the tables in the My Portfolio Stock Charts section, which are updated every week and will not be shown in blue. The text in the tables will be in blue if it is changed or additional.


Australian Market Phase Analysis

Bull Market Phase One: Reviving Confidence

Phase marker Assessment

News about the economy and market tends to be negative

We are generally past this, however, there are lingering elements related to China and the end of the resources boom and the ensuing restructuring of the economy.

The market is anticipating a recovery

Yes, it has been. However it is still not decisively clear of the long sideways pattern since 2009, which is prolonging the first phase of the bull market. In charting terms, it might be seem as a reversal pattern.

Savings rate still high Yes (see household savings ratio chart below)

Interest rates relatively low Yes (see 10-year bond yield and 90-day bill yield charts below)

Private investors are absent from the market Still evident. I continue to encounter consistent media comment about investors being mainly in cash.

The market may ignore bad news Market is still nervous Rise thought to be a bear market rally Yes Disbelief that the rally is the start of a bull market turns to fear of missing out

Yes

The market is fundamentally undervalued We are well past this (see price earnings ratio and dividend yield charts below)

Enquiries into what went wrong Yes, finished Regulation is tightened Yes, largely done


Bull Market Phase Two: Increasing Earnings

Phase marker Assessment

Many companies announce increased earnings Yes. Many companies have reported increased earnings, albeit largely from cost-cutting rather than growth in sales.

Good news is announced Some

Employment picks up

In a normal cycle, a bear market would have been associated with a recession, when unemployment would have increased. However, Australia did not experience a recession this time. Nevertheless, this time we may be seeing a delayed increase in unemployment due to the end of the resources boom and the contraction of manufacturing (see unemployment rate chart below). Thus, unemployment is currently picking up, when normally it would be falling at this stage in the cycle.

New companies are being floated (IPOs)

Very few (see new IPOs chart below). Some recent nascent reports of more activity. We seem to be approaching a big test as we head into the seasonal peak of IPOs at the end of the calendar year.

Significant market corrections end higher

Yes, but we are not decisively clear of the 2009-2013 sideways pattern. This is a significant overlay on everything on the charts. However, that thesis is being tested by the current move to new highs.

Fundamental values return to normal Yes (see price earnings chart below)

Sector rotation Some evidence of this, especially around the chase for yield.

Market Phase Assessment

My judgement now is that we are probably in the transition from phase one to phase two of a bull market. However, there is lingering uncertainty driven by apprehension that has lingered after the GFC and has been exacerbated by uncertainty about the necessary restructuring of the economy after the abatement of the resources boom. That said, all bull market climbs a wall of worry and there are always uncertainties to provide an excuse for undue caution.

The correct investment stance is not to focus on the uncertainties and not to allow them to deter us from acting. Investing is about assuming uncertainty and managing risk. If we try to wait for certainty, there will be little profit to be had because it will have been captured by those who anticipated the opportunities. Thus, the correct focus now is to be constantly ruminating on the opportunities where others only see danger in the changes taking place. Then we should position ourselves to take advantage of change, while managing the risks.


Charts of Fundamental Data The charts in this section have been updated to the end of August 2013 unless stated otherwise.


12-Month SMA of ASX IPOs

The blue monthly bar chart is the ASX All Ordinaries Index (XAO)

The red line is the 12-month simple moving average of the monthly total of new listings on the ASX. This total includes entities other than FPO shares e.g. Trusts and ETFs etc.

This indicator tells us the heat in the market in the sense that the number of new listings tends to rise with speculative activity in bull markets and fall in bear markets. There is a distinct seasonality in the number of new floats, so a 12-month moving average is used to remove the seasonal bias.

This indicator is very depressed – very few new floats recently, though there is a little more talk about emerging interest in new floats. The best new floats (good businesses at reasonable prices) usually come early in the bull market when prices are reasonable.

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M @ M 300198-300813Floats M @ M 300198-300813XAO


ASX All Ordinaries Dividend Yield

This chart shows the dividend yield for the ASX All Ordinaries index as of the end of each month.

The chase for yield in a low interest rate environment has seen the All Ordinaries dividend yield driven lower over the last year, although the decline seems to have stabilised. The reward for risk has been reduced. See also the reduction in the equity risk premium later in this section.


ASX All Ordinaries Price Earnings Ratio

This chart shows the price earnings ratio for the ASX All Ordinaries index as of the end of each month. Between the blue lines is fair value.

The All Ordinaries PE ratio fell, firstly as a result of the market correction mid-year and secondly due to increased earnings. The market is now inside the top of the fair value range.

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ASX All Ordinaries Earnings Yield

This chart shows the earnings yield for the ASX All Ordinaries index as of the end of each month. The Earnings yield is the inverse of the price earnings ratio. It can be compared to the 10-year bond yield to assess the average risk premium given to shares by the market. The earnings yield is calculated:

Earnings yield = 100 ÷ Price Earnings Ratio


Australian Ten Year Bond Yield

This chart shows the RBA yield on 10-year Australian Government bonds. The 10-year bond yield is much longer term than 90-day bills (next chart). It reflects the level of interest rates and inflation expectations in the economy in the long term.

The significant observations on this chart are:

1. The bond yield has been in a long term decline from the 1980s. Over the history of this chart, the bond yield has never been lower. In this situation, there is only one way it can go from here and that is upwards, which means bond prices will fall and significant losses will be made from selling bonds prior to maturity.

2. The bond yield seems to have found a bottom and is rising. This is a reflection of expectations that US bond buying by the Federal Reserve will ease and cease over time. The result has been a steepening of the yield curve (see the chart below), which has resulted from the rise in long term yields relative to short term yields.


Australian Ninety-Day Bill Yield

This chart shows the RBA yield on 90-day bank bills.

The 90-day bill yield is much shorter term than 10-year bonds. It reflects the level of interest rates and inflation expectations in the economy in the short term.

While the long bond yield has risen, the short term yield as expressed in 90-day bills has continued to fall, exaggerating the steepening of the yield curve caused by the rising long bond yield.


Australian Yield Curve

The yield curve is calculated by subtracting the 90-day bill yield from the 10-year bond yield.

For investors, there is a theory that negative bond yields tend to be a precursor of bear markets and/or recessions. On this occasion we may have escaped the fall into a recession, though time will tell.

However, this chart graphically shows the steepening of the yield curve as the likelihood of the slowing of US quantitative easing comes to be anticipated by the market.


Australian Bond Yield versus Earnings Yield

These two charts show the relationship between the 10-year bond yield (the risk-free rate) and the earnings yield on the ASX All Ordinaries index.

What is happening here is that the earnings yield on stocks has flattened out in the face of the rising bond yield. However, the equity risk premium continues to narrow, though more slowly than it was.


Australian Equity Premium

These two charts show the difference between the 10-year bond rate and the ASX All Ordinaries index earnings yield.

The lines are calculated by subtracting the 10-year bond yield from the ASX All Ordinaries index earnings.

These lines therefore show the size of the equity risk premium, which may be either positive or negative.

The equity risk premium has now fallen to the top of the range of the last bull market. For stocks to advance from here, we need earnings to increase. Of course, the market does not wait for that to happen and be reported. It will act on expectations.


Australian Stock Market Chart Analysis

This monthly chart of the ASX All Ordinaries price index is provided as long term context for the sideways patterns that have unfolded during the period of deleveraging that follows debt-fuelled booms and may be a model for what is happening in the present cycle.

The shorter term monthly chart of the ASX All Ordinaries price index Coppock indicator turned up at the end of July 2012.

The ASX All Ordinaries price index had been trending upward strongly above the 12-month SMA. However, it failed to break convincingly clear of the 2009 to 2013 sideways pattern. Important highs like those set in place in 2010 and 2011 are usually significant resistance levels. As such, I anticipated

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20.0030.0040.0050.0060.0070.0080.0090.00100.00

200.00300.00400.00500.00600.00700.00800.00900.001000.00

2000.003000.004000.005000.006000.007000.00M @ M 3101A0-300913 XAO - ALL ORDINARIES INDEX > +0.3% +14.101 to 5302.264

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some churning around the top of the 2009 to 2013 sideways pattern. Instead, we have had a more significant correction and the market is now again testing the resistance zone.

This weekly chart of the ASX All Ordinaries price index shows the multi-year sideways pattern that is still exerting an extremely powerful influence on the chart. It made another new high in the last week, but it has not broken decisively from the levels of the previous highs. We are now seeing the third attempt this year to break clear of the sideways pattern. It should be noted that the two previous attempts failed above the 2011 high, but within the range of the mid 2008 trading range. My thought is that until it has moved decisively above the mid 2008 highs, we cannot confidently call the start of a new bull market upward swing.

So what is a “decisive” move? This question does not have a definitive answer. A new high is not enough. I am inclined to be looking for at least one strongly uptrending weekly bar:

• Significant range

• Open near the low and close near the high

• The daily bars within it should also have a similar character

However, that said, bull markets are said to “climb a wall of worry”. There will always be doubts. If there were certainty, then we would not be assuming uncertainty and managing risk.

My thought is that to wait for certainty is to be left behind. I am already conscious that partly due to hesitation at not finding ideal opportunities and partly due to my work and travel commitments, I have already been left behind in the present upward move. Expect to see me increasing my exposure to the market in coming weeks.

The key thing to remember is that these sideways patterns that form after debt-fuelled booms:

• Are not of predictable duration

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• Have always led to a new bull market

In this latter respect, Australian Investors Association members have access to the presentation Volatility Cycles in the Stock Market by Robert Vagg that was presented at their 2012 Annual Conference and the update in the current issue of Investors Voice titled Recurring Volatility Cycles in the Stock Market. This work by Robert Vagg is of a class far in advance of anything else I have seen on our market. Robert’s target for the next bull market advance is 8,376 points on the All Ordinaries price index.

The way we manage risk is to have stops on every stock and to watch that the Capital at Risk percentage remains manageable. This latter measure will depend on the risk tolerance, proven discipline and experience of each investor.

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D @ D 020484-270913 XAOA - ALL ORDS ACCUMULATION INDEX > +0.3% +115.064 to 43078.908

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These charts of the ASX All Ordinaries accumulation (total return) index have the end of week index value at the top, which is used by some members for their portfolio benchmarking.

The accumulation index is the best benchmark for investors because it assumes reinvestment of dividends (but not franking credits) on the ex-dividend date (not the payment date).

The market has now passed the 2007 high, by which time it has erased all the bear market losses of invested capital for long term buy-and-hold investors whose portfolio roughly mirrors the index. However, it should be realised that this is a rosy view, because the accumulation index records a total return that is before tax and in addition the returns have been reduced by inflation.

The all Ordinaries Accumulation index data below is provided to assist members who wish to track their return against the accumulation index as I do. Accumulation index (Total Return) data is available daily on the S&P website at click here on the Factsheet tab.

ASX All Ordinaries accumulation index Closing values for the current financial year

Closing values for financial years

July 40,360.327 2005 24,146.300 August 41,401.586 2006 29,988.800 September 2007 39,069.800 October 2008 34,336.400 November 2009 26,732.300 December 2010 30,415.200 January 2011 34,117.524 February 2012 31,714.274 March 2013 38,270.322 April May June

http://au.spindices.com/indices/equity/all-ordinaries


My Current Strategy During 2009, all of the guidelines for my market exposure strategy outlined on page 102 of Building Wealth in the Stock Market had fallen into place and I had moved to being 100% invested.

However, as the market fell away in 2010 and again in 2011, I was shaken out of many of my holdings. By 2011, it became clear that the market was tracing out a big sideways pattern as had happened before, notably 1988 to 1993, when the economy was last deleveraging after a debt-fuelled boom:

This put me back at step one of my market exposure strategy, which is being up to 20% invested in upward trending stocks. By the end of June 2011 I was 53% invested and by the end of June 2012, I was 54% invested, well ahead of my strategy.

As had happened in the last similar sideways pattern after the 1987-88 bear market, the Coppock indicator had again declined below zero. Then, at the end of July 2012, the Coppock gave a second signal. My market exposure strategy was then to move to being up to 40% invested in upward trending stocks. Since I was already more invested than my strategy, there was no action required. However, I continued to buy some stocks that met my rigorous margin of safety criteria.

As shown in the chart analysis section above. We seemed to be about to break out of the big sideways pattern on the price index. A breakout from “a broad trading range on the index” is explicitly a signal on step three of my market exposure strategy to move to being at least 70% invested. I had cautiously begun this process in May 2013, advancing to 54% invested. However, it was difficult to build my exposure because stops kept being hit, taking me out of many of my stocks.

My strategy stance now has changed to being willing to participate in the present advance, which has the possibility of breaking decisively out of the sideways pattern. If it does, I do not want to be left behind.

As will be shown in the Portfolio Summary section, my portfolio has lagged the market significantly since 1 July 2013. This is mainly because I was and still am only lightly exposed to the market, when

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M @ M 300181-300913 XAO - ALL ORDINARIES INDEX > +0.3% +14.101 to 5302.264


the general market has been strong. Moreover, some of my stocks have not performed well so far this year, which might have partly alleviated the deficit against the market.

That said, my investment plan objective (cost of capital) is not to beat the market, it is to achieve a 12.5% compound return over time. Nevertheless, I am very conscious that I should be participating in strong markets if I am to fulfil this objective.

This is the first of two pressures on my portfolio: that I am too heavily in cash early in the cycle and should be looking to be more heavily invested.

At the same time, we are in a sideways market. These are always the most difficult markets and require greater experience, discipline and skill. Prolonged sideways markets also require patience and the ability to keep thinking about whether the situation is sufficiently unusual to warrant some adjustment to strategy.

I would like to be more heavily invested than I am. One of the main problems has been that my plan looks to buy undervalued smaller stocks with a margin of safety. I have had great difficulty finding good ones in the last six months. This has been frustrating. It is the second significant pressure on my portfolio. It raises the issue of whether we are in not only a difficult market, but an unusual situation that requires careful thought.

Against all this, as shown in the chart analyses above, we are in a situation where the market is testing a very significant resistance level. It could go either way – break out upwards, or sink back into the sideways pattern.

This means that we are in a high-risk area, where to be too heavily exposed to the market could see many stops being triggered at a loss, as happened a few months ago, if the market again fails to clear the pattern.

However, it also means that to not participate in the advance that tests the resistance zone and successfully breaks clear will see me left badly behind.

The twin horns of this dilemma have been the third significant pressure on my portfolio.

After considerable thought, I have come to the view that I need to participate more fully in this market. I think I have the discipline to deal effectively with the downside risk. Nevertheless, to do so will mean that I have to relax some of my margin of safety criteria in stock selection in the short term to buy stocks that are rising, but not as cheap as I would like.

Further, I think that I can also participate in the market effectively with stocks that are larger than I would normally invest in. They will never be as cheap as my target stocks, or grow as quickly, but will be safer in many respects – safety comes at the price of a lower return.

In recent weeks, I have begun this new policy and added some stocks to my portfolio as shown in the next two sections. If the market continues to hold up or to rise further, I will be actively looking to build my portfolio in this way over the coming period.


Later, when the bull market is confirmed as clear of the sideways pattern, there will be opportunities to swing back to undervalued smaller stocks, which is my prime target in my investment plan. This will increase risk, but it should also increase the potential return.

I am now 41% invested.

IMPORTANT NOTE

The above discussion is with regard to my investment plan. It does not consider the investment plan of any reader. It is intended to show my thinking as a learning tool. Each member must do their own thinking with respect to their own investment plan. Blindly copying me is a very dangerous pastime. I want members to learn to do their own thinking. This means that my strategy may not be suitable for any member now or at any other time. Nor is it an implied recommendation for any member to take any investment action at this or any other time.


Portfolio Summary

Note that I have changed my spreadsheet in an important respect – dividends and imputed credits are now recognised on the ex-dividend date. This provides a closer match to the accumulation index, although that index does not notionally reinvest franking credits.

Accum Index 30.06.13 38,270.322 887,583 40.5 %Accum Index now 43,078.908 1,306,247 59.5 %

Market return year to date 12.56 2,193,830 100.0 %6,921

Target average annual return 12.50 19,229 Total KaR 147,9077,323 %K 6.74

Portfolio rate of return year to date 1.88 7,455-20

Updated to 27/09/13 40,9082,181,325

Current Portfolio Summary ASX No OF TOTAL %K LATEST MARKET %K PROFIT Gain/Loss Hard CapitalSHARE Code SHARES AV COST COST Inv PRICE RETURN Now OR LOSS % Cost Stop at Risk

Amcor AMC 4,100 10.71 43,914 2.0 10.68 43,744 2.0 -170 -0.4 9.26 5,816Brambles BXB 4,700 9.25 43,471 2.0 9.21 43,244 2.0 -228 -0.5 7.84 6,433Cedar Woods Properties CWP 7,000 6.20 43,373 2.0 7.40 51,748 2.4 8,375 19.3 4.82 18,042Collection House CLH 28,745 1.77 50,865 2.3 1.845 52,982 2.4 2,116 4.2 1.365 13,784Credit Corp Group CCP 8,300 10.42 86,463 3.9 9.42 78,108 3.6 -8,356 -9.7 7.96 12,106Ramsay Health Care RHC 5,800 19.68 114,142 5.2 36.35 210,619 9.6 96,477 84.5 31.66 27,175RCR Tomlinson RCR 14,800 3.00 44,444 2.0 3.72 55,001 2.5 10,557 23.8 2.40 19,516Retail Food Group RFG 17,900 4.39 78,659 3.6 4.34 77,608 3.5 -1,050 -1.3 3.74 10,729Sonic Healthcare SHL 2,700 15.86 42,811 2.0 16.20 43,696 2.0 885 2.1 12.24 10,681Tatts Group TTS 45,600 2.63 120,048 5.5 3.10 141,219 6.4 21,171 17.6 2.98 5,467The Reject Shop TRS 2,600 17.97 46,725 2.1 17.99 46,727 2.1 2 0.0 15.28 7,039Vocus Communications VOC 15,900 2.65 42,177 1.9 2.70 42,887 2.0 710 1.7 2.00 11,119

757,093 887,583 130,490 Total KaR 147,907168,309 %K 6.74

Current portfolio capital gain/loss -37,819

Portfolio Summary

less Capital gain carried forward from previous year

Total ReturnBank and broking fees

TWAC

Franking Credits

Dividends & Trust DistInterest

Portfolio ValueCash Reserve

Total Capital (K)Net Capital Gain/Loss

W/E Market Portfolio PFO V Mkt Target PFO V Tgt5/07/13 3.82 0.66 -3.16 12.50 -11.84

12/07/13 3.86 0.83 -3.03 12.50 -11.6719/07/13 5.21 0.66 -4.55 12.50 -11.8426/07/13 Not recorded2/08/13 6.78 0.81 -5.97 12.50 -11.699/08/13 5.59 -0.21 -5.80 12.50 -12.71

16/08/13 6.93 -0.35 -7.28 12.50 -12.8523/08/13 7.78 -0.18 -7.96 12.50 -12.6830/08/13 8.20 0.70 -7.50 12.50 -11.806/09/13 8.98 0.92 -8.06 12.50 -11.58

13/09/13 10.64 1.07 -9.57 12.50 -11.4320/09/13 11.86 0.87 -10.99 12.50 -11.6327/09/13 12.56 1.93 -10.63 12.50 -10.57

Percentage Return Year to Date FY 2012-13


My Portfolio Stock Charts and Summary Tables

% capital invested 2.0% % capital now 2.0% PER 19.09 Dividend Yield 3.75% Franking Unfranked Ex-Dividend 2/09/2013 Dividend Paid 30/09/2103 Assessment Amcor has broken out of a multi-year sideways pattern and is

trending upward strongly. It has significant overseas earnings that should gain a boost from a falling AUD, though the dividends are unfranked.

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% capital invested 2.0% % capital now 2.0% PER 19.76 Dividend Yield 2.93% Franking 30% Ex-Dividend 9/09/2013 Dividend Paid 10/10/2013 Assessment Brambles broke out of an accumulation pattern. It was trending

upward. Its overseas earnings should gain a boost from a falling AUD, though the dividends are only 30% franked. The price fell out of the trading range it was in, but held above my stops. The trading range then represented a resistance band above the current price. However the price has now pushed up into the range of the pattern.

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10.00W @ W 281108-270913 BXB - BRAMBLES LTD > +1.5% +0.14 to 9.21


% capital invested 2.0% % capital now 2.4% PER 14.83 Dividend Yield 3.51% Franking 100% Ex-Dividend 30/09/2013 Dividend Paid 30/10/2103 Assessment Cedar Woods Properties continues to move up strongly.

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M @ M 310894-300913 CWP - CEDAR WOODS PROPERTIES LTD > -1.3% -0.10 to 7.40

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0.800.901.00

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7.008.00W @ W 281108-270913 CWP - CEDAR WOODS PROPERTIES LTD > -1.3% -0.10 to 7.40


% capital invested 2.3% (Adjusted for scale-back of SPP) % capital now 2.4% PER 13.57 Dividend Yield 3.90% Franking 100% Ex-Dividend 2/10/2013 Dividend Paid 30/10/2013 Assessment Collection House fell to the top of the trading range from which it last

broke out upwards. This trading range now appears to have provided support. The company has announced an SPP issue, which I subscribed, but did not get my full application.

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M @ M 311000-300913 CLH - COLLECTION HOUSE LTD > -1.3% -0.025 to 1.845

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


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1.802.00W @ W 281108-270913 CLH - COLLECTION HOUSE LTD > -1.3% -0.025 to 1.845


% capital invested 3.9% % capital now 3.6% PER 14.45 Dividend Yield 3.93% Franking 100% Ex-Dividend 23/09/2013 Dividend Paid 4/10/2103 Assessment I was stopped out of Credit Corp Group a while ago. It has now made

a new high for the trend, so I bought back into it on the guideline in my investment plan. After moving up strongly, I invested a further 2% of capital. The price has then fallen back, but is well above my stops.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

0.30

0.400.500.600.700.800.901.00

2.00

3.00

4.005.006.007.008.009.0010.00

20.00MOV AVS 12(0) mnth 8.9733 M @ M 290900-300913 CCP - CREDIT CORP GROUP LTD > -1.5% -0.14 to 9.42

J F M A M J J A S O N D2010




2.803.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

12.00W @ W 011010-270913 CCP - CREDIT CORP GROUP LTD > -1.5% -0.14 to 9.42


% capital invested 5.2% % capital now 9.6% PER 27.37 Dividend Yield 1.94% Franking 100% Ex-Dividend 3/09/2013 Dividend Paid 25/09/2013 Assessment Ramsay Health Care has moved sideways out of the last year’s strong

trend. This has been a great stock, but it is now very fully priced.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

0.700.800.901.00

2.00

3.00

4.005.006.007.008.009.0010.00

20.00

30.00

40.00MOV AVS 12(0) mnth 32.04 M @ M 300997-300913 RHC - RAMSAY HEALTH CARE LTD > +0.2% +0.06 to 36.35





10.00

12.00

14.00

16.00

18.00

20.00

30.00

40.00W @ W 080110-270913 RHC - RAMSAY HEALTH CARE LTD > +0.2% +0.06 to 36.35


% capital invested 2.0% % capital now 2.5% PER 13.32 Dividend Yield 2.22% Franking 100% Ex-Dividend 6/09/2013 Dividend Paid 4/10/2013 Assessment The price has risen strongly. That move may be due for a correction.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

0.080.090.10

0.20

0.30

0.400.500.600.700.800.901.00

2.00

3.00

4.00MOV AVS 12(0) mnth 2.3575 M @ M 291196-300913 RCR - RCR TOMLINSON LTD > +2.2% +0.08 to 3.72

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

0.30

0.40

0.50

0.600.700.800.901.00

2.00

3.00

4.00W @ W 281108-270913 RCR - RCR TOMLINSON LTD > +2.2% +0.08 to 3.72


% capital invested 3.6% % capital now 3.5% PER 16.15 Dividend Yield 4.55% Franking 100% Ex-Dividend 9/09/2013 Dividend Paid 11/10/2013 Assessment Retail Food Group is continuing a steady rise.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

0.70

0.800.901.00

1.20

1.40

1.601.802.00

3.00

4.00

5.00MOV AVS 12(0) mnth 3.705 M @ M 300606-300913 RFG - RETAIL FOOD GROUP LTD > -1.1% -0.05 to 4.34

J F M AM J J A S ON D2009



J F M A M J J A S ON D2012


1.00

1.20

1.40

1.60

1.80

2.00

3.00

4.00

5.00W @ W 020109-270913 RFG - RETAIL FOOD GROUP LTD > -1.1% -0.05 to 4.34


% capital invested 1.9% % capital now 2.0% PER 19.22 Dividend Yield 3.83% Franking 45% Ex-Dividend 29/08/2013 Dividend Paid 24/09/2013 Assessment Sonic Healthcare is trending upward strongly.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

0.400.500.600.700.800.901.00

2.00

3.00

4.005.006.007.008.009.0010.00

20.00MOV AVS 12(0) mnth 14.0883 M @ M 281093-300913 SHL - SONIC HEALTHCARE LTD > +1.6% +0.26 to 16.20

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

9.00

10.00

12.00

14.00

16.00

18.00W @ W 281108-270913 SHL - SONIC HEALTHCARE LTD > +1.6% +0.26 to 16.20


% capital invested 5.5% % capital now 6.4% PER 17.97 Dividend Yield 5.00% Franking 100% Ex-Dividend 29/08/2013 Dividend Paid 7/10/2013 Assessment Tatts continues to build a sideways pattern. The successive lower

peaks in the pattern are a concern because it could be forming a bearish descending triangle pattern. Volume has declined over formation of the pattern, which confirms it. However, no pattern is complete until there is a breakout.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

2.00

3.00

4.00

5.00

6.00MOV AVS 12(0) mnth 3.1258 M @ M 290705-300913 TTS - TATTS GROUP LTD > Steady 3.10

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

2.00

3.00

3.60W @ W 281108-270913 TTS - TATTS GROUP LTD > Steady 3.10


% capital invested 2.1% % capital now 2.1% PER 28.09 Dividend Yield 2.06% Franking 100% Ex-Dividend 23/09/2013 Dividend Paid 14/10/2013 Assessment The Reject Shop has been forming a sideways pattern. This is not to be

unexpected in the vicinity of the 2010 all-time high. The pattern could, of course, be either a reversal or a continuation. My stops are protecting a downward breakout. However, recent price action looks bullish (rising lows). The proof will be a new high.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

1.00

2.00

3.00

4.00

5.006.007.008.009.0010.00

20.00MOV AVS 12(0) mnth 16.4575 M @ M 300604-300913 TRS - REJECT SHOP LTD (THE) > -0.9% -0.16 to 17.99





8.00

9.00

10.00

12.00

14.00

16.00

18.00

20.00W @ W 080110-270913 TRS - REJECT SHOP LTD (THE) > -0.9% -0.16 to 17.99


% capital invested 1.9% % capital now 2.0% PER 23.98 Dividend Yield 0.37% Franking 100% Ex-Dividend 23/09/2013 Dividend Paid 14/10/2013 Assessment Vocus Communications is a high risk, but potentially high reward

investment that is trending upward strongly.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

0.50

0.60

0.70

0.80

0.901.00

1.20

1.40

1.60

1.802.00

3.003.20MOV AVS 12(0) mnth 2.01

M @ M 300710-300913 VOC - VOCUS COMMUNICATIONS LTD > +0.4% +0.01 to 2.70

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

0.50

0.60

0.70

0.80

0.901.00

1.20

1.40

1.60

1.802.00

3.003.20W @ W 090710-270913 VOC - VOCUS COMMUNICATIONS LTD > +0.4% +0.01 to 2.70


Overseas Markets

The DJIA last gave a Coppock indicator signal in May 2009.

There is an alternative view of the shape of the major pattern on the Dow Jones Industrial Average that casts into doubt whether there has been a decisive breakout:

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

30.0040.0050.0060.0070.0080.0090.00100.00

200.00

300.00400.00500.00600.00700.00800.00900.001000.00

2000.00

3000.004000.005000.006000.007000.008000.009000.0010000.00

20000.00M @ M 3101A1-300913 DJR - Dow Jones Industrials Index > -0.5% -70.06 to 15258.24

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

-400

400

Copp

Coppock = 169.1493400.00

4000.00

5000.00

6000.00

7000.00

8000.009000.0010000.00

12000.00

14000.00

16000.00MOV AVS 12(0) mnth 14346.0708 M @ M 291093-300913 DJR - Dow Jones Industrials Index > -0.5% -70.06 to 15258.24


There is nothing of concern here so far.

Technical analysts have been calling a top repeatedly on each successive divergence in this great upward trend. Eventually they will be right – there is a divergence at most turning points in trends. However, there are many divergences that are not turning points in steady trends, merely corrections in the trend.

After a strong rise, the Dow Jones Industrial Average seems to be consolidating above the previous all-time high. The question that remains in my mind is whether it has convincingly broken out of the sideways pattern that has formed since 2000, or whether it may fall back into it. Last week saw a continued drop back from a strong bounce from a higher trough. This turbulence around the tapering of bond buying by the Federal Reserve is likely to continue to be a feature of the market going forward.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

3200.00

4000.00

5000.00

6000.00

7000.00

8000.00

9000.0010000.00

12000.00

14000.00

16000.00

18000.0020000.00MOV AVS 12(0) mnth 14346.0708

M @ M 291093-300913 DJR - Dow Jones Industrials Index > -0.5% -70.06 to 15258.24

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

6000.00

7000.00

8000.00

9000.00

10000.00

12000.00

14000.00

16000.00W @ W 281108-270913 DJR - Dow Jones Industrials Index > -0.5% -70.06 to 15258.24


The NASDAQ Composite last gave a Coppock indicator signal in May 2009.

1980 1990 2000 2010

50.0060.0070.0080.0090.00100.00

200.00

300.00400.00500.00600.00700.00800.00900.001000.00

2000.00

3000.004000.005000.006000.00M @ M 260271-300913 98NAS - NASDAQ Composite Index > -0.2% -5.833 to 3781.594

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

-600

1,000

Copp

Coppock = 202.106600.00700.00800.00900.001000.001200.001400.001600.001800.002000.00

3000.00

4000.00

5000.006000.00MOV AVS 12(0) mnth 3313.5502

M @ M 291093-300913 98NAS - NASDAQ Composite Index > -0.2% -5.833 to 3781.594


The NASDAQ Composite continues to lead the US market higher.

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

1200.00

1400.00

1600.00

1800.00

2000.00

3000.00

3800.00W @ W 281108-270913 98NAS - NASDAQ Composite Index > -0.2% -5.833 to 3781.594


The last Coppock indicator signal was in May 2009.

The S&P 500 pattern is similar to the DJIA, with an important difference. The broader index did not make an appreciably higher peak in 2007. The present breakout from the sideways pattern is looking increasingly convincing.

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

4.005.006.007.008.009.0010.00

20.00

30.0040.0050.0060.0070.0080.0090.00100.00

200.00

300.00400.00500.00600.00700.00800.00900.001000.00

2000.00M @ M 3101A0-300913 SP5 - S&P500 Index > -0.4% -6.92 to 1691.75

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

-500

400

Copp

Coppock = 203.19380.00400.00

500.00

600.00

700.00

800.00900.001000.00

1200.00

1400.00

1600.001800.00EXP MOV AVS 12(0) mnth 1571.8493

M @ M 291093-300913 SP5 - S&P500 Index > -0.4% -6.92 to 1691.75


The S&P 500 is clearly trending up. So is the Nasdaq. Only the DJIA is a bit weak. There are endless negative stories about the US. While there will be ongoing turbulence as the taper from QE3 takes place, watch the chart, stupid – this market is still making new highs.

Below is the chart with a trend channel:

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

600.00

700.00

800.00

900.00

1000.00

1200.00

1400.00

1600.00

1800.00W @ W 281108-270913 SP5 - S&P500 Index > -0.4% -6.92 to 1691.75

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

600.00

700.00

800.00

900.00

1000.00

1200.00

1400.00

1600.00

1800.00W @ W 281108-270913 SP5 - S&P500 Index > -0.4% -6.92 to 1691.75


The Coppock indicator turned up in July 2012.

There continues to be significant resistance ahead of the FTSE 100 from the 2007 and 2000 highs, both of which levels are marked on the weekly chart below.

1970 1980 1990 2000 2010

100.00

200.00

300.00

400.00500.00600.00700.00800.00900.001000.00

2000.00

3000.00

4000.005000.006000.007000.008000.00M @ M 310170-300913 FTS - FTSE 100 Index > -0.8% -52.93 to 6512.66

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

-400

400Copp

Coppock = 154.9682600.00

3000.00

4000.00

5000.00

6000.00

7000.00EXP MOV AVS 12(0) mnth 6287.3752 M @ M 310393-300913 FTS - FTSE 100 Index > -0.8% -52.93 to 6512.66


The UK market seems to have bounced off a higher trough, but so far failed to pass the last peak.

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

3400.00

4000.00

5000.00

6000.00

7000.00W @ W 281108-270913 FTS - FTSE 100 Index > -0.8% -52.93 to 6512.66 2007 high


The Coppock indicator turned up last in July 2012. After several premature signals, this signal looks strong.

The Nikkei225 has now moved well clear of the sideways pattern it has been in since 2009. However, it is still well down in the huge sideways pattern that has formed since 1990. The long term chart at the top also shows that there is a wide pattern of resistance above it.

1970 1980 1990 2000 2010

1000.00

2000.00

3000.00

4000.005000.006000.007000.008000.009000.0010000.00

20000.00

30000.00

40000.00M @ M 310170-300913 98NI2 - Nikkei 225 Index > -0.3% -39.05 to 14760.07

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

-600

600

Copp

Coppock = 549.7266000.00

7000.00

8000.00

9000.0010000.00

12000.00

14000.00

16000.00

18000.0020000.00

24000.00EXP MOV AVS 12(0) mnth 12575.4915 M @ M 291093-300913 98NI2 - Nikkei 225 Index > -0.3% -39.05 to 14760.07


The Nikkei 225 has now bounced off a higher trough, but is yet to pass the last peak.

J FMAMJ J ASOND2008

JFMAMJ J ASOND2009


JFMAMJ J ASOND2011

J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

7000.00

8000.00

9000.00

10000.00

12000.00

14000.00

16000.00W @ W 281108-270913 98NI2 - Nikkei 225 Index > -0.3% -39.05 to 14760.07


The Coppock indicator turned up at the end of September 2012, but has now turned down again into negative territory.

The Shanghai All Ordinaries remains in the tentative sideways pattern it has been in since 2009.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1800.002000.00

3000.00

4000.00

5000.00

6000.00

7000.00

8000.009000.0010000.00

12000.00

14000.00M @ M 291200-300913 98SSE180 - Shanghai All Ordinaries Index > +0.4% +18.777 to 5186.439

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

-1,000

3,000

Copp

Coppock = -4.2971800.002000.00

3000.00

4000.00

5000.00

6000.007000.008000.009000.0010000.00

12000.0014000.00EXP MOV AVS 12(0) mnth 5208.034

M @ M 291200-300913 98SSE180 - Shanghai All Ordinaries Index > +0.4% +18.777 to 5186.439


With most commentators calling China on the way to hell in a hand basket, the market seems so far to be sending a contrary message.






4000.00

5000.00

6000.00

7000.00

8000.00

9000.00W @ W 210809-270913 98SSE180 - Shanghai All Ordinaries Index > +0.4% +18.777 to 5186.439


ASX New High-New Low Index

All three timeframes seems stuck in a sideways pattern – lacking momentum. Yet the market keeps rising.

weekly market and portfolio journal: 27 september 2013sep 27, 2013 · opportunities where others...

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