Chart in Focus: Has the NASDAQ gone too far? | Woolworths margin expansion | Housing on the “outs”

31 March 2023

Chart in Focus: NASDAQ Technical Analysis

The recent recovery in the NASDAQ sees the tech index up strongly, now trading at a 7-month high,and up +17% year to date. Despite no strong fundamentals to support that as the Fed are still aggressive with their rate hikes and with valuation metrics looking inflated, with no major break in the economy yet despite the significant quantity of rate hikes (banking scare being mostly contained, and a recent flock to safety towards large cash rich tech companies creating support as well as recent momentum + some short squeezing and portfolio rebalancing).

Using RSI as an indicator there seems to be some room and time for the market to extend its gains temporarily with the purple line and upward arrow within the down market, as well as orange arrows in the bull market. This is usually temporarily lasting a few weeks then met with a pullback in both bull and bear markets. In the current bear channel we suspect the “rug pull” once it happens will be heavy — like it has done so over the past 15-months. We see 2023 first quarter tech earnings to be the possible catalyst due late April.

We are yet to see the Fed fully break something, but are possibly close to seeing something major break (3-6 months away). We believe the markets are too optimistic, pricing in a soft-landing alongside elevated P/E multiples which disregard the high interest rate environment we are currently in. We expect a downward re-rate in multiples.


New Zealand Market Movers 

The New Zealand market (NZX50, +1.7%) was up strongly as global markets continue to rebound, while boost to the end of the session on portfolio balancing saw most shares trade upward.

Housing news – The number of new dwellings consented in Feb was down 29% compared to Feb last year. Looks short-term bearish for construction stocks — how does this translate to developers like DuVal? (“only when the tide goes out do you see who’s swimming naked”). We still like Fletcher Building as a buy if you can stomach holding it through the cycle.


Australia Market Movers 

The Australian Market (ASX200, +1.0%) was up again, with all sectors trading higher except for real estate.

Tech, materials and financials were the best performing as investors risk appetite improved.

In M&A news Albemarle, the London asset management company, now has a ~4.3% interest in Liontown Resources whilst Paine Schwartz Partners has lifted its stake in Costa Group to 14.84%, from 13.78%. Elsewhere, Morgan Stanley Infrastructure Partners is reportedly weighing a rival offer for Healius. We’re neutral rated on Costa – further weakness might encourage a takeover offer but at this point we don’t see a lot of value.

Looking at the Aussie supermarkets – after Woolworths 1H23 results – we think the supermarkets have some room for margin expansion — +200/300 bps. We remain buy-rated on Woolworths – margin-expansion is “proof in the pudding” of its pricing power up against a tough economic backdrop.


US Market Movers

The S&P 500 was up +0.57%. Look across the ditch to retailer H&M, where shares were up +16% on the back of better-than-expected results. What happened was basically a mini “short squeeze” — traders were heavily short on H&M and the good result took them by surprising, forcing liquidations of the short position. We’ve been noticing this across the board – the closing of short positions is arguably what has been keeping the NASDAQ bouyant (as well as overseas equity markets). Note that Morgan Stanely downgraded Charles Schwab – we think this is misplaced – Schwab has plenty of liquidity to meet customer demands — note this (long) piece here. Remaining buy rated.


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