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The ASX200’s post COVID rally continues in earnest with the local market breaking above both its March high and the psychological 6500 level during yesterday’s session. The markets now rallied well over 10% in the last 3-weeks as stocks continue to embrace the US election, positive vaccine development and ongoing huge monetary & fiscal stimulus. Last week I wrote “My “Gut Feel” is the buying in the banks and resources will continue but the aggressive selling of some tech names will abate pushing the underlying index higher.” – this has been on the money recently and we see no reason to doubt a further extension of this new trend into Christmas but after an almost vertical style rally some decent pullbacks or at least consolidation is inevitable.
Yesterday wasn’t the ASX’s proudest day with the trading system failing for almost 6-hours – a lot of not-too subtle lines circulating around the office yesterday however it seems the ASX has a glitch like this every 4 years – last time it happened was in 2016 and 2012 before that – fingers crossed for today. This particular ASX technical upgrade reminded me of what Apple regularly run through my phone, it never works as well afterwards. All we know for sure is the market opened strongly coming within a whisker of 6500 by 10.24am before the curtain fell, the futures implied stocks would have drifted for most of the day before finishing close to their highs but only a crystal ball will know the exact answer.
This morning the SPI futures are calling the ASX200 to open up around 50-points after a strong performance on Wall Street which saw the likes of BHP rally ~2% in the US. Again the “recovery story” looks set to lead the pack after the Energy Sector surged almost 4% on Friday night compared to the IT sector which gained less than 1%, investors remain comfortable to look through the current awful COVID picture in the US following Pfizer’s vaccine announcement. With earnings turning higher and a global reopening on the horizon the optimists are in in charge at present and we see no reason to the fight the uptrend until further notice.
The ASX200 took a well deserved rest yesterday after its impressive surge so far this month, interestingly a move which wouldn’t surprise the disciples of statistics with November actually the strongest month of the year for US stocks in an election year. The pullback on Thursday had a lacklustre drift feel about it as opposed to anything more sinister with 35% of the market still managing to close up on the day. A few days consolidation around the 6400 area feels logical after the recent 566-point / 9.6% rally but we’re in no hurry to sell this market per se, our focus is more around stock and sector selection after the macro events of the last 10-days.
The five-day winning streak for the ASX ended today with the market trickling lower from the outset, however there was a lot of corporate news out to digest – most if it positive. After a very bullish run for stocks, some consolidationa around current levels would not surpirse with the thematic of sector / stocks rotation being front and centre.
At the sector level today, Telco’s topped the board thanks to a 3% rally in Telstra (TLS) – more on that below while money came back into the tech sector today after a few tough sessions.
Asian markets were mixed today while US Futures were down during our time zone.
By the close, the ASX 200 was down -31pts / -0.49% to close at 6418. Dow Futures are trading down -210pts/-0.72%
The ASX was hit hard today losing nearly 100pts, although it didn’t feel ‘that bad’ in terms of individual stock moves, it was more akin to a slow cash crash than anything aggressive or spectacular. Yesterday, the ASX defied weakness in US Futures which traded lower throughout our time zone picking the overnight weakness well, today the opposite played out with strength in US Futures not being embraced by local traders.
The ASX put in a far better performance on Wednesday steadily rallying throughout the day to finally close marginally up on the session, a solid performance considering the current global acceleration of COVID cases – German Chancellor Angela Merkel is now looking to close bars and restaurants for a month and France is moving into a stricter lockdown on Friday, travel shares struggled on the ASX yesterday and the trend continued across Europe last night. The local market will be tested again today following an awful night on Wall Street where stocks fell by the most in months with losses across all 11-sectors of the S&P500.
The stock / sector rotation in the both US & Australian markets remains at extreme levels, we continue believe the way to add value (alpha) in the current market is through switching as opposed to simply increasing / decreasing cash levels, or market exposure. However investors should always remember all good things do eventually come to an end, we can see ourselves increase cash holdings across the portfolios at some stage before Christmas, ideally the NASDAQ shown below will regain its “mojo” and test / break its all-time high in October following its classic 14% washout of the “weak longs” and increasing number of momentum traders.
Asian equities powered ahead helped by US S&P500 futures trading at yet another fresh all-time high during our time zone – what’s not to like in equities land? If investor’s simply don’t listen to the news and watch the money flow through stocks it would be hard not to be fully invested, unfortunately it’s hard to avoid the press or listen / watch the news without hearing how dire things are on both the economic and humanitarian front. I know it sounds back to front but history tells us that until things finally look & feel good, probably with a vaccine approaching production, the stock market will probably continue to “climb its increasing wall of worry”.
update 28/08/2020 16:02 On the index level we remain bullish targeting an eventual “pop” above the 6200 area by the ASX200 although the 6000 “magnetic pull” continues, in our opinion the higher the US Indices rally without local participation the greater the possibility that such a rally towards 6300-6500 will become a false breakout, at least short-term. MM has remained fairly aggressively positioned well up the “risk-curve” since March’ s virus led savage sell-off but we reiterate our intention to migrate slightly away from risk if / when such a rally unfolds.
