The ASX200 felt strong yesterday even though it closed down over 0.5%, the local index managed to recoup half of the days early losses with 35% of stocks finally to closing in positive territory while the IT and Resources Sectors both closed up on the day – only 2 stocks fell by over 5% which illustrated the lack of aggressive selling, unlike Friday! However it’s one thing for the market to find support into weakness but we need a definite 360 about-face in market sentiment to make another assault on new highs, now over 5% away.
Financial markets are experiencing wild swings as investors second guess the impact of Omicron on global growth into 2022, and beyond. We might have already seen the 2 extremes in sentiment but with numerous headlines crossing news wires every few hours its certainly too early to say for sure:
- Optimistic – Omicron is a slightly more transmissible strain than Delta but the symptoms appear milder and over the last 6-months many countries have made excellent progress with vaccinations etc
- Pessimistic – Omicron will prove more transmissible with higher cases of reinfections and current vaccines will have reduced effectiveness.
- Despair – Omicron is testament that further COVID strains lurk on the horizon and there are plenty of battles left before we win this war.
Whichever one proves on point our view that 2022 would see elevated volatility and by definition opportunity has received a thumbs up over the last 48-hours. At this stage similar to last week, although from different levels, we believe investors / traders should let the market tell us where it wants to go.
- We are short-term neutral around 7250, the risk / reward is attractive around 7000 while a close above 7350 would see us again adopt a bullish view into Christmas.
However, we feel the real opportunities will arise on the stock level as investors continually alter their outlook towards interest rates e.g. IT stocks fared well on Monday because the Omicron strain has seen bond yields fall on global growth concerns, of course nobody has mentioned further stimulus so far, I’m sure it’s the last weapon central banks want to bring back but after working so hard since March 2020 I doubt they will give up without a fight if things do slow too fast for comfort – what a difference a week makes!
US stocks bounced strongly overnight as COVID fears eased, all of the S&P500 sectors posted gains but it was the blue ribbon tech names that led the recovery sending the NASDAQ up well over 2%. The SPI futures are pointing a strong open this morning with an 70c rally by BHP Group (BHP) in the US likely to help early gains.
MM remains cautiously bullish the ASX
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