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The Greek negotiations took a step back with the creditors rejecting Alexis Tsipras’ proposal. The IMF seems open to increasing its preference towards additional spending cuts above revenue raising measures. The less said about this the better, as the level of frustration among financial market participants is clearly elevated. However, we simply can’t look away and the calls of ‘little progress being made’ resonates.
The fact is Greece is still a key input into market semantics and we have many ‘key’ meetings remaining to drive headline risk through to Tuesday’s IMF €1.6 billion payment. The positive is that markets haven’t really shown any major concern by the rejection overnight.
With these proceedings in mind, we are looking for the ASX 200 to unwind at 5,675, down a modest 11 points. It will therefore be an interesting session given the bulls have been in control of the market since 10 June, with the index rallying 4.3% (or 233 points so far) in that time. Breadth has been good as well, with 50% of stocks now above the 20-day moving average, up from 15% on 10 June – this has shown good participation in the rally, with moves not confined to just a few heavyweight names. Traders will therefore be keen to see if the bulls use this modest dip on the open as a buying opportunity.
Certainly, part of the move higher from 10 June has been premised on covering short positions, specifically the banks. If we look at the short sell ratio in CBA and WBC, both have fallen to multi-year low percentages of around 2%, with WBC having spiked to 15% in late March. With hedge funds having closed shorts on the banks, volatility is likely to drive price action in this sector and income and yield will generally underperform in times of increased volatility. Although the ASX VIX (volatility index) stands at 15.16%, a 6% premium to the 12-month average, you can hardly say implied volatility is high.
Other interesting issues traders will be watching today:
- The bulls are fully in control of Chinese markets again with the CSI 300 putting on 2% yesterday. Valuations may be extreme but as long as the trading public believe the government and PBoC want a higher stock market, the various mainland markets will find buyers. The path of least resistance is higher, especially on news that officials are relaxing commercial banks loan to deposit ratios, which of course means increased credit into the economy.
- Japan is still the first choice for global money managers and the Nikkei is up 22% ytd in AUD terms, relative to the ASX 200 at 5.1%. The daily chart is a thing of beauty and valuations are still compelling on a relative basis. Buying dips in this market seems the trade and we should see the index down 0.6% on the open today.
- Locally there are 12 stocks in the ASX 200 with short interest ratios above 15% and therefore worth looking at if one’s preference is for trading reversals. FLT (28%), DSH (22.1%), ARI (16.3%), and TEN (15.3%) are among these, but of course wait for price action to confirm any impending reversal.
- AUD/USD traded to a session low of $0.7683 and looks like we could see a test of the lower Bollinger band of $0.7612. The big move, however, was AUD/NZD, which fell 1% and I feel short positions here look compelling for NZD1.1126 and then NZD1.1000. Exit shorts on a move through NZD1.1300.
- For Greece watchers there are meetings through today and through European trade at all levels. There is still time to agree a short-term plan so that Greece can get funding in exchange for reforms and therefore avoid capital controls and ultimately achieve the payment to the IMF. However, time is slipping away and things are looking precarious, specifically for the Greek public.
- Away from Greece, CME copper is in a textbook channel and remains a sell on rallies in my opinion. Sell orders can be worked into $2.65 (26,500 with IG).
- Getting attention is the four-hour chart of US light crude and the triangle pattern in play. Watch for the break of $61.60 for a move into $66.00.