Australian US Equities

Santa Rally Imminent.

This week the S&P 500 had an overall range of 189 points from high to low, the NASDAQ traded in a 476 point range and our Australian 200 traded in a 161 point range. The Australian volatility index XVI moved higher to 17 as forward risk is priced in, the US VIX also moved higher at 22 this being all too bearish for equities. For a bullish stance the respective indicators would be below the 13 level.

Market volatility this week has been blamed on the sudden turnaround in sentiment surrounding the US China trade deal. This is a deal the Chinese need more than the US. China’s economy is continuing to slow with GDP in the mid 6% range and falling YOY. More importantly China is facing the same issue the US has with Current account deficits. While the US is trying to put its current account back on the positive side of the ledger, the Chinese are trying to stop their current account further declining and possibly moving into the negative.  We have a high stakes game for both players.

While the recent G20  meeting was underway both the US and China agreed to halt further tarrifs for the next 90 days. On the next market open a 104 point gain was registered only to be followed by further declines as market cast doubt onto the deal, as the Chinese failed to confirm the discussions. Volatility up and markets down.

The chart below is a 30 day average of seasonality of movement in the Australian market.

The highlight of the chart is the Christmas rally with an average starting time in the 2^nd week of December. The question to ask yourself, is the current 2018 market displaying signs of a base and more importantly a bullish rally over the holiday period.

Lets take a look at some drivers of the Index , remembring the Index is heavily weighted to the 4 banks and a few large industrials including WES, BHP and CSL.

Traders should also be mindfull that there always remains good trading opportunities in individual stocks outside of the top 10 drivers of the Index.

Taking a look at the 3 major Index charts Australian 200 CFD, the S&P 500 and the Nasdaq100, they are posting very similar basing patterns.

The daily chart of the Australia 200 CFD shows the resistance level of 5792 as the first resistance level on any move higher by the Index. What this chart really highlights are the 3 significant lows in place, with last nights movement at (3) making a break below price support point 2, this is a very bullish sign the market has support at this level. With the higher close back towards 5600 points a further move higher could be expected. Traders should be mindful of the low at point 3, as a breakdown below this level would have the “long side” of the market forced to take stops, as this process takes place lower prices can occur.

The SP 500 daily chart also posted the same type of bullish setup with a move below point 2 and a higher close to the top of the daily range. To confirm the bullish case a close over resistance at 2820 is required, some 184 points from the current close. The bullish engulfing candle (3) is a good start to reach the highs.

US Tech 100 daily chart is more bullish with the higher low of 6624 (3) is in place. Clear resistance at 7138 is the first target point. Last nights strong close after making a lower low from yesterday is a strong sign of further price gains.
Stop would be placed at the 6532 low. A breakdown below point 2 would usher in a full bear market in Tech stocks.

Taking the current index movements as a proxy for overall trader sentiment, and taking onboard the seasonality of the Australian market, the potential for a Christmas rally is well underway. The importance of Stops cannot be under estimated in this current volatility.