Trading Day: relief rally

The S&P/ASX 200 jumped on the open and is up over 2% after midday, due to the “resolution” of the US debt crisis announced this morning. The market is up a total of 90 points or 2% at 4514.

Other Asian markets are experiencing similar gains, with the Nikkei 225 up 1.87% at 10013 points, and the Hang Seng up 1.49% at 22773 points.

Other risk assets are mixed, with the AUD regaining its record high, now at 1.1046 against the USD, whilst gold has sold off, down over 1% to $1614 USD an ounce. WTI crude is up over 1% to $96.99 USD per barrel.

Movers and Shakers
It’s unicorns and rainbows across the board, with all sectors gaining, the financials in front. The banks are all up 2-3%, even Macquarie (MQG) taking part in the free-for-all, up 1.5%

The resource twins BHP and RIO are also in the party, up 2.5% and 2.1% respectively, whilst my preferred offspring – Cochlear (COH) and CSL – are up slightly, 1.4% and 1.7% respectively.

Daily Chart
As I said on Friday:

…if the US Congress can sort out the debt crisis, there maybe a rebound rally overnight that wipes out any shorts put on today

For mind, this is just that – a relief from the doom and gloom of recent weeks, and this “boom” will have a probable target of 4600 points, with the possibility of overshooting to 4700 points, but the latter would take some outstanding good macro-economic news.

The daily chart shows how today’s action replicates the start of the prior two relief rallies – a very strong reversal (which overshadows the previous day(s) bearish action), before a petering action after a week or so as reality (or lunacy as Adam Carr puts it) bites again.

Note bullish candle in previous two relief rallies - there's a lot of selling to overcome

We go into tomorrow as the RBA weighs up a rate rise and into the dual fists of the local earnings season (Rio Tinto reports on Thursday – watch all the updates here) and US unemployment reports on Friday. Hold onto your hats.

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  1. It’s predictable that this happened that the US National debt just jumped $2.2 Trillion with reduced growth of 1.3%, and minimum spending cuts relative to the size of the interest payments, but everything is ok. Great investment logic.

  2. Yep it’s gonna be some week.
    I’ve got a hunch that this rally will go further than the others, as Friday’s false break was stronger than the previous intra-day false breaks.
    But, I wouldn’t trade that hunch (what a strange word), at least not at this point.

    • 4700 is still the strong resistance level overhead. Wouldn’t be surprised if it goes past that intra-day, but to close above would indicate a turn-around.

      The caveat is this earnings season: euphoria on the “cheapness” of the market based on low double digit P/E ratios may push it towards 5000.

      The macro situation infers the market is well above value however. Earnings may turn out to be ephemeral at best.

  3. So did the Tea Partiers cave?

    Can someone give me a once sentence description of the ‘debt deal’?

  4. “… even Macquarie (MQG) taking part in the free-for-all, up 1.5%”

    MQG has given up all its gains and then some.