Australia: S&P/ASX 200 (.AXJO) Poised for Small Dip at Open
The Australian sharemarket is tipped to stumble into a new week as investors gauge whether the easing of lockdowns – and also the promise of accelerated retail spending – will ward off concerns a COVID rally has gone too hard, too fast.
The SPI futures contract is pointing to a fall of 24 points or 0.4 per cent when the ASX opens on Monday, having sagged into the weekend against a familiar backdrop of geopolitical tension. The index slipped sharply at Friday’s close after profit takers cashed in on a remarkably strong week as relations between Beijing and Washington once more threatened to boil over.
Global equities were already edgy ahead of United States President Donald Trump’s address on Chinese security laws for Hong Kong and Wall Street closed lower amid the heightened volatility.
Shayne Heffernan CEO and Founder of Heffx said this tense undercurrent is one of the few factors that would prevent the ASX from continuing its COVID rally on Monday.
He said optimism around the next step of NSW lockdowns easing on June 1 will herald a consumer spending surge, and further stoke sharemarket confidence.
This week pubs, clubs, cafes and restaurants are going to be ready to serve up to 50 customers at a time, and beauty salons, galleries, libraries and museums are allowed to reopen. travel to regional NSW will be permitted.
You can see this pent-up demand – people will spend. People can return to the shops.
“So much of the stimulus is yet to flow to the shops, and lower income brackets (who are more likely to have received government stimulus) are more prone to spend. The very near term will be very positive news flow.” said Shayne Heffernan.
He says it will be the flow of company updates that will additionally determine the direction of the market.
People are seeing well past the end of the lockdown phase now and want to know if businesses have improved their outlooks from when they pulled guidance.
Shayne Heffernan said he understood why the market had rallied so hard since hitting a bottom on March 23 however questioned whether or not the subsequent 30.7 per cent rise was too much, too soon.
“We assume the rally might have gotten a little bit ahead of itself … I wouldn’t be shocked if we saw a bit of a consolidation phase from here,” he said.
“We can understand the reasons why the markets will still go up, but now I believe we need confirmation as to where we expect earrings to come by in the next year or so, not just the next six months.”
Profit taking capped gains at the end of an extraordinary week for the ASX where five straight weeks of gains accelerated amid a catch-up rally for the unloved banking sector.
Despite slipping on Friday, the financials added 11.1 per cent for the week and the wider ASX 200 4.7 per cent.
The week ahead is plagued by economic data that would usually prove crucial to market sentiment, but which analysts say has largely been priced in.
March quarter GDP figures and April building approvals are due on Wednesday, and a full read on April retail trade are going to be disclosed on Thursday, along with the month’s international trade.
We are looking for colour from the Reserve Bank board meeting on Tuesday however the cash rate is not expected to shift from its current record low 0.25 per cent.
Price Performance
Top Movers
Bottom Movers
Shayne Heffernan Trade Idea
“Valuations in themselves seldom spell the end of a bull run. We were struggling with this issue even before COVID-19, and if the pandemic didn’t happen, I believe the markets would have kept pushing to new record highs.
Irrational or otherwise, this bull run feels to me like it still has legs in the short-term and that’s in no small part due to the record amount of stimulus injected into the global financial system.
This doesn’t mean we won’t see a big correction, but unless something else pops out from left field, signs are pointing to more gains for the ASX over the coming weeks, if not a bit longer.
As the market adage goes – the trend is your friend.
Just don’t be the one holding the parcel when the music stops.” Shayne Heffernan PhD in Economics
Technical Analysis
Overall, the bias in prices is: Sideways
Note: this chart shows extraordinary price action to the upside.
The projected upper bound is: 6,154.45.
The projected lower bound is: 5,389.05.
The projected closing price is: 5,771.75.
Candlesticks
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 26 white candles and 24 black candles for a net of 2 white candles.
Momentum Indicators
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
Stochastic Oscillator
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 75.0189. This is not an overbought or oversold reading. The last signal was a sell 0 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 61.09. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 45 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 116.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 5 period(s) ago.
MACD
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 44 period(s) ago.
Rex Takasugi – TD Profile
S&P/ASX 200 closed down -95.400 at 5,755.700. Volume was 138% above average (neutral) and Bollinger Bands were 33% narrower than normal.
Open High Low Close Volume 5,851.100 5,851.100 5,755.700 5,755.700 2,447,639,296
Technical Outlook Short Term: Overbought Intermediate Term: Bullish Long Term: Bearish
Moving Averages: 10-period 50-period 200-period Close: 5,641.78 5,318.42 6,341.14 Volatility: 26 48 37 Volume: 1,080,817,536 1,056,759,10 4 793,256,320
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
Summary
S&P/ASX 200 is currently 9.2% below its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods.
There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect volume flowing into and out of .AXJO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .AXJO and have had this outlook for the last 33 periods.
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