The ASX200 has commenced a historically strong few weeks less than 2% below its all-time high with a feeling of inevitability in the air – MM has been targeting the 7700-7800 area for months and at this stage, we feel on point. However, there is usually a sting in this tail for equities because both locally and overseas May / June are usually the worst seasonal combined months for stocks e.g. the Average return for the ASX200 over the last 20-year during these 2-months is -1.0% and we should remember that during most of this time stocks have been enjoying a strong bull market hence the regularly quoted phrase “sell in May & go away”.
As we all know the combination of strong banks & resources has enabled the ASX to significantly outperform its global peers but after calling the index and sector rotation well post COVID MM cautions subscribers around becoming too enthused if we indeed pop to fresh all-time highs – our mantra for 2022 of “buy the dip & sell the pop”, with more emphasis on the later remains front and center in our minds. I know we have mentioned this a few times over recent weeks but we are potentially approaching the pointy end of Q2 and MM is looking to tweak our portfolios further if we are correct:
- We believe the Australian banks are poised to struggle after advancing strongly post COVID e.g. CBA has more than doubled while also paying some very healthy fully franked dividends.
- Similarly the Resources Sector has enjoyed a cracking 2-years with BHP Group (BHP) also more than doubling but we feel this exceptional rally by the miners is maturing fast.
- MM can see the likes of both BHP & CBA making fresh highs this month but we can see ourselves fading such an advance.
Interestingly given the uncertain and troublesome macro backdrop (inflation shock, hawkish Fed cycle, Ukraine etc), the recent bullish sentiment recovery can easily be described as dangerously complacent, we feel the risk/reward towards buying the VIX into current weakness is attractive, especially a few percent lower if stocks do enjoy another strong April.
MM believes the VIX is a buy into current weakness
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