Angus Nicholson for Chris Weston, Chief Market Strategist at IG Markets
The ASX has bounced strongly off the 5100 level and there looks to be enough momentum to carry it back above the 5300 level again. The Brexit vote will dominate trade this week, and we have seen a noticeable move in positioning towards the “Remain” camp winning the vote. Were such a situation to occur, the relief rally could be enough to take the ASX back above 5400. The market internals for the ASX do seem to be pointing to further gains. Companies at new 4-week lows have dropped dramatically, indicating sentiment in the index improved, which bodes well for the index this week.
The future price-to-earnings (P/E) ratio can tell traders if the valuation of the ASX 200 is “expensive” or “cheap” relative to its long-run average. While this can be used to time reversals, it is best used in conjunction with other inputs like market internals, price action and technical analysis. Current: 16.88
Note all trades are designed with a 3-5 day hold period in mind, and a 5% stop loss.
Trade of the Week – MQG (Buy)
Macquarie Group has definitely been a key beneficiary of the recent risk-on rally. The company has significant UK business and would certainly be impacted in the event of a Brexit vote winning at the ballot. The move in markets towards the “Remain” camp winning seem to be benefitting the stock.
BSL (Buy)
The risk-on rally and the renewed selloff in the US dollar have clearly benefitted steel-maker BlueScope. The stock looks like it increasingly has the momentum to retest its mid-April high of A$7.00.
MYO (Buy)
MYOB has now had four days of back-to-back gains and momentum increasingly looks to be behind the stock. On a technical level it has also broken through the Ichimoku cloud again, further indicating that it may be ready to retest the A$3.50 level.
BWP (Buy)
A lot of the major property REITs in the ASX have gained over the past two sessions, but BWP Trust looks most primed for further gains. It has consolidated in the A$3.60-A$3.70 level, but a strong risk-on rally in markets could see break higher.
SGM (Sell)
SGM’s steady decline since mid-April looks set to continue. Sentiment in the stock continues to weaken, and a further drop towards the A$6.00-A$6.60 level seems perfectly feasible.
