The market awakens from it’s slumber
Weakness finally dominated the ASX today with the market being sold heavily thanks to Trumps war of words with Denis Rodman’s pal in North Korea. Most pain was felt in the consumer discretionary stocks followed closely by the Material names which were down -1.50% - an overall range of +/- 70 points, a high of 5744, a low of 5674 and a close of 5744, off -67pts or -1.18%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
We’ve been of the opinion recently that risks to the downside were bubbling away, yet the market wasn’t adequately pricing them, in terms of both complacency in the equities and importantly the options market. Overnight we saw the biggest selloff in U.S. equities since May and that sparked a big rush for protection in the options market. In terms of the mkt there, about 2.6 million puts and calls tied to the CBOE Volatility Index changed hands on Thursday, the most on record furthermore about 3.4 call volatility options - a bearish equities trade - have changed hands for every put contract. This is a theme we’ve spoken of recently and have been warning of for some time. That said, it’s unlikely to be the start of a big rout in our view unless the tensions materially escalate, which is always a possibility but not the ‘likely scenario’ in our view. This weakness, therefore should be viewed as a buying opportunity for those with cash on the sidelines as we do. We talk more about our views in the Weekly Video (below).
In terms of our views this week, we suggested early on that with North Korea and the US on the brink of war we now have a clear potential catalyst for the ASX200 to break out from its 12-week 5629-5836 range. If the situation unfortunately deteriorates we are likely to get a fall towards the 5500 area which we have targeted over recent weeks, alternatively a relatively quick and positive resolution now feels likely to send stocks higher. We now think 5500 becomes the obvious downside target, although we do concede that we’ll most likely spend some our 23.5% cash balance if the mkt drifts lower from here.
Our Market Matters video below – we cover the mkts weakness today, our views on reporting season and gold. Have a great weekend.
Have a great night & watch for the weekend report on Sunday
The Market Matters Team
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