Trading Day: Unreal undollar rally

The S&P/ASX 200 Index closed up 93 points or 2.2% today to 4162 points following gains on “undollar” or non-USD risk markets around the world. In after hours trading, the index is up slightly, with Euro and US markets also pointing to strong opens.

Asian markets experienced similar moves, with Japan’s Nikkei 225 up 1.25% at 8628 points, whilst the Hang Seng rose over 3.5% to 17778 points.

In other risk assets, the AUD is currently trading at 97.77 cents USD, whilst WTI crude was steady after rallying overnight, and is at $82.60 USD a barrel.

Gold was up during the Asian session, currently at $1660 USD an ounce or $1696 AUD an ounce.

Movers and Shakers
Another bright shiny green board on the ASX, with almost all sectors up, the biggest winners financials, energy and materials (as always it seems) and telco/IT sectors down.

All of the banks were up strongly, with ANZ up 3.3%, Commonwealth (CBA) underperforming “only” up 1.9%, NAB up nearly 4% and WBC up 2.5%. Macquarie (MQG) was bid up strongly again, rising another 6% for the day.

Cochlear (COH) slipped to close below $49 as investors await the October 18th AGM (and hedge their bets on other blue chips), whilst CSL put on 1.2%.

BHP Billiton (BHP) had another good day – up 2.5% and Rio Tinto (RIO) was up nearly 5% again – up some 12% this week after hitting its 2 year low, whilst Newcrest Mining (NCM) went up 2% and Fortescue (FMG) up nearly 8%

The Charts
The unreal undollar rally continues – what is pushing this market up? Unicorns and rainbows? QE from the BOE? I would say an absence of bad news and a realisation that a 20% correction MUST BE a brilliant bonanza for bargain basement buys for the bulls.

Weekly chart of ASX200 - 1000 point drop....

What do we need to see for a continuation? As I said yesterday:

First, the ASX200 follows Europe and US so watch for their leads. Next, the local market needs a weekly price close (a daily peek above is not enough) above the medium term moving average at the congestion area at 4100 points.

Ding and ding. But there are 2 clouds on the horizon. First, the crucial US jobs market figures tonight, then:

Further support of the rally will come when very strong resistance at 4300 points is breached and therefore the road is clear to the long term moving average at around 4400-4500 points.

Daily chart - note next resistance level at 4300 points

I consider this a high risk rally and not an entry point for investors of any timeframe except a period of weeks and months.

There are substantial technical risks here, let alone fundamental (quick reminder – Europe is still in the woods without a paddle, US political deadlock is tighter than a Scotsman at a bar).

www.twitter.com/ThePrinceMB

Comments

  1. Don’t know how much weight I would attribute to my intuitive guessing but in academic speak, the ASX seems to be exhibiting a beta of 2.0 in relation to main US markets.

    Also Prince, how much weight would you attach to theory that the very pronounced downward trend that has been in place since August is called into question with break of trendline, weekly close confirmation that recoups nearly 75% of downwards move since the beginning of downtrend in August (last point in relation to all significant Fib retracements being passed)

  2. By my reckoning the ASX is trading right under everything up to a 60 day moving average right now – unbroken since the bear begin in April. I am leaning towards interpreting a clear breakout up to 4300 as a pretty strong sell signal. Not based so much on technicals but based on the chance of us going all next week without the merest hint of bad news being slim to none.

  3. Well US employment data was great. Not really enough to offset population growth but excellent nonetheless. Looks like more rallies to come. With Greece’s bailout next week and Slovakia’s vote, we are heading back up to parity and 4300 on the ASX.

    I’m quite surprised. I guess the economy doesn’t react as much to stockmarket plunges as I thought. More and more high-up figures are warning about the hopelessness of the Europe situation. New orders in PMIs sucked worldwide last month and August so I guess the anemic recovery will continue, along with the sharp gyrations in confidence.

  4. very insightful. i wish the stock brokers could talk straight like this.
    it has taken me years to sift through the bull.

  5. ceteris paribus

    Looking backwards, the directions of the equity market are clear and explicable; looking forward they are enigmatic and inscrutable.

    We waste a lot of time in this futile pursuit which would better be used building something elsewhere. Still, you’ve gotta eat.