The ASX200 drifted marginally lower yesterday with the value names continuing to support the index while the broader index drifted lower under the weight of increasing concerns around rising bond yields and inflation. While the banks were firm the Resources Sector was the standout for MM with influential stocks like BHP Group (BHP), RIO Tinto (RIO) and South32 (S32) all advancing over 2% – MM expects more of the same over the coming weeks but if we are correct this year will not be a one trick pony.
On Friday night we saw US employment data highlight rising wages and falling unemployment even as Omicron swept across the nation, hence the market has become heavily positioned for the Fed to start hiking sooner rather than later – last year it was already pencilling in 3 moves in 2022, now it’s 4 hikes, with the futures already pricing in a 90% chance of a hike in March. For subscribers to remain in sync with our view in Q1 it’s important to understand the following 3 points:
- The market is already heavily positioned for rising interest rates & inflation, we believe they are probably correct very short-term but the risk / reward is at dangerous contrarian levels.
- We continue to believe the Resources Sector will outperform in early Q1 but a number of stocks / commodities are already approaching our target areas.
- Hence through 2022 we can see ourselves tweaking our portfolios away from value names into the defensives such as healthcare and utilities stocks but there’s no hurry yet.
On the index level we’ve now seen the ASX200 rotate between 7145 and 7632 for over 6-months with the market basically closing in the middle of the range yesterday. Technically this structure should usually be “played” in 2 very different ways although patience is the common denominator:
- Don’t trade the market between 7200 & 7600, the random noise will frustrate most players and lead to unnecessary losses.
- However selling a false break out up towards 7700 and buying the reverse down to 7100 is a strong risk / reward play.
Overnight saw another volatile night on Wall Street with the Dow closing down 160-poiints after regaining much steeper losses earlier in the session. This time selling was more evenly spread which might suggest sellers are getting tired, especially towards tech. The SPI futures are calling the ASX200 to open down around 40-points with the banks likely to be a rare shinning light if we follow the US
MM remains bullish the ASX targeting fresh highs in 2022
Add To Hit List
