A cold spring week that felt like winter. Heavy downpour then stopped gushed again with hail then stopped. That felt like Septimber, the correction I cautioned you about in the last week of August. Last Wednesday, I indicated that "Present market behaviour suggests to me that we could be out of this quagmire within a week." Then on Thursday morning this this https://hotcopper.com.au/threads/its-over.4002109/page-5632?post_id=47586830#.X26CKMIzapo in which I opined that selloff on the ASX was overdone and by Friday, our ASX leaped 1.5%.
Overnight market action on Wall St reinforced further positive signs that Septimber is now closer to its tail end. All US market indices were in the green, Nasdaq was higher by 2.26% led by Tesla +5%, Apple +3.75%, Amazon +2.49%, Microsoft +2.28% amd Facebook +2.12 while new economy stock Zoom continued its climb +6.78%, the S&P500 crossed 3300 briefly but closed at 3298 for a 1.6% gain while the Dow tagged 368 pts or 1.34% to close at 27174 with bellweather stock Boeing gaining a whopping 6.83%. If this is any clear sign BTD was happening in the market, well unlike previous fake rallies where the indices gained only in the last hours of trade, we only a virtual straight line north trajectory throughout the course of the overnight trading session. That was the first positive sign.
Then comes to the VIX as a second positive sign. The VIX fell dramatically to 26 at the lower end of the range before this equities correction took place. It will however require a fall below 25 to mark the end of the volatility and the possible start of the next rally (if we get one).
But as Adam Mancini indicated, we need the S&P500 to break above 3330 before the bulls can rest easy and we are just 32 pts away or 1%. Given what I hear about positive ramblings on Apple on CNBC, it wouldn't surprise me if Apple delivers that upside to take the S&P500 above that resistance next Monday. And that would take us closer to the end of that week which I predicted as end to this quagmire.
That is the good news.
The not so good news is that I further opine that our ASX would me more muted in its green start on Monday.
Now why do I say so? Firstly, we have gone ahead 1.5% on Friday, market participants had anticipated a better Wall St overnight.
Second, the sharp bank stock rises on the back of Treasurers announcement to rescind the responsible lending law would I believe start to taper back because the gains also came from very oversold positions earlier on and the bounce came too sharply too. Market will also realise that the motion for the law is only next March, a positive sign but as I remarked yesterday "you can bring the horse to the pond but you cannot force the horse to drink" to suggest that it is wishful thinking that this can suddenly provoke banks to start getting loose on their lending when they had begun to change internal cultures to do the right thing in responsible lending following the scandals and that the banks would want to lend more (even when allowed to) when the economic environment is one of uncertainty and continued risk. The fact is banks want to lend to people who do not need loans ,not to people who do. Even loosening the law would not induce banks to lend to travel agents, retail businesses or individuals on contract income (those who need loans), the lending standards have been cast in stone, and Josh is not only late to the party and his policy of trying to rejig the reckless lending environment would not go down well in his legacy. And thirdly, this is just in , Scomo doubled down on his warpath to reinforce his demands for the virus enquiry at the UN, so we should expect further China reprisals and backlash in the weeks ahead. I can understand Scomo doing this on a matter of principle but why is Australia representing the rest of the Western world including the US on the international stage, we may be applauded for our heroics , Scomo may gain the political respect he so cherish to make up for his poor performances domestically but he does no favours for Australian businesses (especially those doing business in China or depend on China) and the ASX, and it wouldn't surprise me the Europeans would be smiling that a small country like Australia is prepared to be China's whipping boy to send a strong message across, after all it was just yesterday that the UK courted China by inclusion of China sovereign bonds in their FTSE Russell index.
Reminds me of the smaller boy who continues to instigate the big bully boy after being hit once, twice instead of once bitten twice shy.
