Equity Indices

The ASX200 finished the shortened week on Friday up +1.8% as the influential Tech, Financial and Materials Sectors all closed up over 3%. China was the catalyst for the miners as they cut rates for the 1^st time in 10 months, at MM we have been looking for the Resources Sector to trigger buy signals after analysts have become fixated on a looming recession, this may still unfold if central banks fail to balance their fight against inflation with an economic contraction but China pressing the stimulus button is a huge help for commodities and related stocks. We are bullish on the Resources Sector medium/long term and plan to increase our exposure over the coming months, as opportunities arise.

• The SPI Futures are pointing to a flat open by the ASX200 this morning even after a weak session on Wall Street plus a 50c pullback by BHP during US trade.

The tech based NASDAQ made fresh 18-month highs last week as heavyweight Microsoft (MSFT US) followed in the footsteps of Apple Inc (AAPL US) by posting new all-time highs – as we said last week “hardly the bear market so many pundits keep forecasting”. In the short term, we believe some consolidation is likely especially as we enter the seasonally weak 2^nd half of June but we still see no reason to not favour buying dips and investing with the trend.

• We are keen buyers into weakness, ideally of a similar magnitude to the February-March pullback.

Many equity indices are now technically in bull market territory i.e. generally classified as a market that’s rallied +20%. However, others such as the small caps touched on earlier have hardly advanced as this largely unloved bull market continues to defy the numerous bears and sceptics, our view is to “keep it simple stupid” – investors aren’t buying earnings misses such as CSL’s last week but they are happy to push stocks ever higher that perform well hence unless we get a very influential catalyst such as China we don’t believe it’s time to pick bottoms in stocks/sectors – that time will come when we see broad investor confidence improvement.

• The small caps have rotated between 1600 and 2100 for more than a year, we see no reason to fight this sideways trend (yet).