Asian Open: Turnaround Tuesday or dead cat bounce?

Asian Futures:

• Australia's ASX 200 futures are up 1 points (0.01%), the cash market is currently estimated to open at 7,356.00
• Japan's Nikkei 225 futures are up 140 points (0.49%), the cash market is currently estimated to open at 28,657.59
• Hong Kong's Hang Seng futures are up 280 points (1.22%), the cash market is currently estimated to open at 23,251.33
• China's A50 Index futures are up 123 points (0.78%), the cash market is currently estimated to open at 15,914.28

UK and Europe:

• UK's FTSE 100 index rose 99.38 points (1.38%) to close at 7,297.41
• Europe's Euro STOXX 50 index rose 67.86 points (1.65%) to close at 4,174.99
• Germany's DAX index rose 207.77 points (1.36%) to close at 15,447.44
• France's CAC 40 index rose 94.89 points (1.38%) to close at 6,964.99

Tuesday US Close:

• The Dow Jones Industrial rose 560.54 points (1.6%) to close at 35,492.70
• The S&P 500 index rose 81.21 points (1.78%) to close at 4,649.23
• The Nasdaq 100 index rose 358.634 points (2.29%) to close at 15,986.28

Equity markets were broadly higher overnight with European bourses and Wall Street extending gains first seen during Asian trade. Whilst the usual gloom of Omicron lingers, there are hopes that a third dose of Pfizer could help stifle its efficacy and there’s new hope for Biden’s ‘build back better’ plan with Schumer saying a new vote will be ready in the new year. Yet, upon the backdrop of new restrictions being implemented across Europe and the US calling in 1000 military Doctors to aid overwhelmed hospitals, some may be reluctant to cheer on Santa’s rally and simply move to cash until the New Year. But, if this is a replay of 2018, equities could simply rip higher once more leaving many on the side lines wondering why.

Intermarket correlations point towards Santa’s rally

At some point investors need to make a call and, after looking across the major asset classes, we are leaning towards a sustained bounce over a sucker punch. NZD/JPY and AUD/CHF were the strongest crosses which shows currency markets confirm the moves on Wall Street, whilst bond yields were also higher. The calendar is very quiet during Asian hours ahead of the holidays so we will need to rely on global sentiment to gauge likely direction and levels of volatility for local markets.

We favour NZD over AUD if sentiment remains elevated

AUD/USD is looking comfortable above 0.7100 and is potentially less than a trading day away from 0.7186 resistance, judging from its historical volatility levels. Yet with AUD/NZD finding resistance beneath the October high, NZD may be the better bullish bet over the near-term on a relative basis against the US dollar. NZD/USD was the strongest major yesterday and printed a punchy bullish candle near its 13-month lows, so we suspect there has been some short covering over the past 24-hours and that it could have more to give bulls should sentiment remain buoyant today.

Oil back above 200-day eMA

Both WTI and brent managed to reclaim their bullish status above their 200-day eMA’s. As this puts price action back inside sideways ranges then trade could be on the choppy side, so we need to see them break their respective range highs before becoming more confident that the December low was significant for a bullish case.

Gold retraced for a third consecutive day. It’s trading around the mid-point of Thursdays high-low range and yesterday’s inverted hammer shows a loss of bearish momentum, so now looking for further evidence of a trough to form.

ASX 200 to reclaim 7400?

The decline from the 7443 high appears to be corrective, with Monday’s bullish hammer at the 61.8% Fibonacci level hinting it was nearing completion. Then yesterday’s strong bullish close convinced us that the corrective low is indeed in place. For today we would like to see prices hold above 7300 / monthly pivot point and make its way towards 7400 (which is not unachievable today if yesterday’s direction and volatility remains in place). As for targets over the near-term trend resistance and the monthly R1 pivot are viable – although if this is finally the beginning of Santa’s rally then it could even break to new highs as we approach the new year.

 

ASX 200 Market Internals:

ASX 200: 7355 (0.86%), 21 December 2021

• Healthcare (3.9%) was the strongest sector and Real Estate (-0.29%) was the weakest
• 10 out of the 11 sectors closed higher
• 4 out of the 11 sectors outperformed the index
• 140 (70.00%) stocks advanced, 46 (23.00%) stocks declined
• 61% of stocks closed above their 200-day average
• 47.5% of stocks closed above their 50-day average
• 56% of stocks closed above their 20-day average

Outperformers:

• + 7.46% - Nanosonics Ltd (NAN.AX)
• + 5.08% - Zip Co Ltd (Z1P.AX)
• + 4.91% - CSL Ltd (CSL.AX)

Underperformers:

• - 9.06% - Pilbara Minerals Ltd (PLS.AX)
• - 4.19% - Liontown Resources Ltd (LTR.AX)
• - 3.38% - Novonix Ltd (NVX.AX)

 

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