Getting so close to major market breakout #83

by Barry Dawes

Key Points

  • Gold still basing ahead of a surge in 2019
  • Australian resources sector ready for breakout
  • US Equities recovering
  • Emerging markets recovering nicely
  • BHP solid and near 4 years US$ highs
  • Brent oil price has bottomed
  • Many, many opportunities in ASX resources stocks
  • Contact me to participate

2019 seems to be shaping up for a strong year with robust demand for commodities and very constructive technical setups for many markets.

The selloff in the US Technology Sector may now have seen its worst so the outlook for the resources against a very pessimistic market place looks solid.

I still consider the evidence is extremely strong for the next leg in the Dawes Points Global Boom TM and for the Australian resources markets to start soon.

We are certainly HERE!

I continue to emphasise the time frames involved in this pattern (starting from Dec Qtr 1998 and extending into the ~2030s) and I need to add that the current market conditions (the rise of 3300m people in Asia) have never before experienced so this ~30 year pattern is unique in modern history and probably unique in all human history.

We incessantly bombarded with bearish opinion on China and the global debt position and now the next recession in the US is already underway.

Yet the markets say otherwise.

Sir John Templeton (1912-2008), one of the greatest investors, is credited with stating

    • Bull markets are born in Pessimism

 

    • Grow in Scepticism,

 

    • Mature in Optimism and

 

  • Die in Euphoria

That is the theme of the Dawes Points ASX Resources Sector Pattern.

The terms are modified to give a clearer picture of the first leg rising (from the Pessimism of the prior cycle) in Scepticism and then falling back to Pessimism before setting off into the Optimism Leg. Euphoria is still many years away.

These are also the three impulse legs in Elliot Wave terms.

This pattern can be seen perfectly in the ASX All Ordinaries XMM Metals and Mining Index.

Wave 1 (the Disbelief Leg) peaked in 2008, fell in the GFC Pessimism then rallied with Hope into 2011 before that horrific 50% 15 month decline of Despair (or Pessimism writ larger) in to late 2015.

ASX S&P Metals and Mining Index Weekly Close 2006-2019

Reviewing the contemporary commentary in Dawes Points over 2013-2015, it was clear that it was all sentiment driving the markets. That Wave 2 into late 2015 was pure sentimental Pessimism. And Pessimism only exists in a Wave 2.

The fundamentals of strong growth in China, record after record levels of consumption of metals and other resources commodities, declining terminal market inventories, growing resources sector earnings and a strong US equity market were simply ignored.

After that late 2015 selloff, the XMM rallied for over two years before spending most of 2018 in a sideways to down fashion.

Note that the various corrections set up Head and Shoulders reversal patterns that give targets for much, much higher prices.

The combination of the break of the 7.5 year downtrend and completion of a smaller Wave 2 (set up by the pessimism of the Wall Street selloff) is very powerful.

We are now at the 2011 downtrend and breaking this will lead to a strong market acceleration to the upside.

Very high targets are generated by this market action

The leaders will be the market leaders of BHP, RIO, S32, OZL, WPL, OSH.

Most of these are on +5% yields with additional special dividends and buyback benefits.

But as has been stated here previously, the ASX Gold Sector is leading the broad global resources market.

The Australian Gold Sector is even more definitive.

This Dawes Points unweighted index of the Terrific Ten Australian listed domestic producers is up almost 1300% from its June 2013 lows while the ASX XGD itself made its lows in November 2014. The XMM didn’t bottom until late 2015.

Those Terrific Ten were up almost 13x and truly off this chart.

These S&P ASX Indices of XGD, XMM, XKR and XSR do not accurately reflect the true state of the health of the Australian resources sector.

We need something better.

So it is always important to focus on the US$ gold price.

Gold really is the driver of the Australian resources sector.

Gold continues to act constructively in US$ and over the next few months should be able to rally back up to US$1300 and then challenge the critical US$1370 level.

US$ Gold 2009 -2019 Weekly close.

As noted, the gold price in A$ has made a new all time high in 2019 along with gold in most other minor currencies but it needs to make new highs in Yen, Yuan, Rupees and Euros before we get too excited.

Copper is also looking constructive and the demand/supply position is still very tight. LME inventories are still very low.

Oil is oversold and demand just keeps pushing at supply. Games over Saudi exports, Iran, US exports and US imports can’t hide the overall issue that there is not enough low cost oil supply.

BHP is also providing leadership as it is anticipating better copper and oil prices.

So this now becomes very interesting to look at the myriad of smaller resources companies out there.

I have examined dozens of these ASX Australian resources companies over the past couple of months and consider that we are now at the equivalent of the June 2013 lows for those Terrific Ten Gold Producers.

How about another NST (16x), GOR (16x), SAR (26x), SBM (10x) or EVN (7x)?

I consider I have dozens of them.

Many sectors.

Gold. Copper. Oil and Gas. Battery Metals. Rare Earths. Mineral Sands. Uranium. Zinc and Lead. Iron ore.

The macro environment is right.

The US markets are bouncing back.

The chaotic events in Europe aren’t fazing the German DAX.

Emerging markets are rebounding in a spectacular technical pattern.

The Dawes Points Global Boom is now ready for the next up leg.

Call me to participate.

Barry Dawes BSc F AusIMM (CP)  MSAFAA

Executive Chairman
Martin Place Securities

I own or control in portfolios most of the stocks mentioned in this report.

+61 2 9222 9111
bdawes@mpsecurities.com.au

20 January 2019

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