Firstly, we should consider that the S&P 500 futures were down 0.2% at 16:00 (the close of the ASX 200 cash session), so having moved modestly higher, it’s no surprise to see our call for the Australian equity market now above 5400.
The key level to watch will be the 27 May high of 5427, it will be interesting to see if the bulls can push the index into this prior high. The ASX 200 has rallied for the last five consecutive days, putting on close to 5% in the process. We have seen only one occasion in 2016 where the index has rallied for six days in a row, in early March. The balance of probability therefore suggests that buying on the sixth day of gains is probably not the best strategy (from a risk-reward perspective) and one should perhaps wait for a slight pullback – although the market did rally for nine consecutive days in December.
If one is to focus on the market internals we can see good participation in the recent rally, with the percentage of companies above their ten-day moving average increasing from 55% to 84%. The materials sector looks like a thing of beauty right now (see below chart) and the 7.7% rally in the last five sessions has taken the sub-index trading above its 50-, 100- and 200-day average. Sellers will be more prominent in this sector today though given the collapse in oil prices overnight, on higher gasoline inventories and small losses in iron ore. BHP’s ADR, if we use as a proxy for the space, is 1.3% lower.