AZL Daily Report, page-20

Why resource stocks are not buying the rally in Indices?

Yes AZL remained flat to finish at 7.6c. Our volume was on lower side, just over 6m shares traded. Just trying to hold the line on a weaker sentiment day.

ASX Li stocks declined along with most resource stocks. Of the 54 stocks that I track, average decline was 2.5%. Many big stocks had decent falls up to 10%. But its not unusual, when the rise happens, they gain big as well. But signs today that a lot of institutions are playing safe and taking some of the table.

What next:

Yesterday US markets were closed. Today its an early close. It could be light volume.

SP 500 made some good gains on Wednesday and is now sitting at 4027. The first test is around 4065/4070 level, the 200 day moving average. Lets see if we reach there, and if do, is there a large sell off or we smash thru.
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Indices have decent rise in last couple of weeks, both US and ASX. But if we look at resource stocks, many are behaving as if the indices are going backwards. All lead indicators like Dollar Index, Yields, Volatility Index VIX - are all going in favourable direction. So why are resource stocks not buying it?

There are multiple theories going around and analysts are themselves very much divided - what is happening and what is going to happen. One thing is we are reaching a very critical level on SP 500 - the 200 day moving average. In March/May/August - 3 times SP 500 tried to cross it, failed and was pushed down very big. That is weighing a lot on many who are playing the stock market. Many who are risk averse are trying to sit on sideline. Another thing is that institutions are also going risk off, so they are coming out of resource stocks. That is putting a lot of pressure on sp of stocks. Few divergences have also appeared in some indicators which some analysts believe could be sign of reversal.
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Finally, many analysts who for the whole year have been calling that stock market will bottom only when it reaches around 3100-3400 (average 3250 on SP 500) have not yet given up even after this rise beyond 4000. They feel its coming, after this rally, wherever it finishes. So many who follow these analysts may be playing safe, hence no buy pressure.

But one thing we have to remember - many of these analysts have been humbled by what stock market has done this year - both going up and down. Many analysts that I read/listen have changed as markets have. So we have to be open to the thought that anything can happen. Individual risk-reward determines how much we want to be in and how much out. Hopefully for most who are long termers, even if there is a decline, stocks will recover, we have seen that - question is about timing.

Personally as I mentioned in last Weekly Report when I was 35% cash, I have been maintaining that, actually some more after this week. I still feel a test of 4070 or possibly 4150 may happen, but I am not sure what will happen after that.

So what will happen tonight? Can be a low volume day. This can mean that either bears or bulls if they become serious could pull it one direction. SP 500 is within striking distance of the biggest resistance of 2022 - the 200 day moving average. Will it go there again tonight, but this time smash thru it? Lets hope so. Enjoy your weekend and all the best.