More talk of 6000

We are calling the ASX up 11 points to 5994 – six points and counting to what has almost become a magical resistance level.

Iron Ore
Source: Bloomberg

The resistance at 6000 is incredibly strong and the ASX has tested this point five times this year - each time it has considered touching 6000 it has failed. What’s more; three of those times the positive momentum in the morning session completely reversed and was sent into negative territory in the afternoon - the bears are defending this point with strength. Do I think the ASX will have the will to cross and hold 6000 points today – No, but it might cross over for a few seconds.

Iron ore rose to its highest level since March last night at US$59.09, Shanghai futures in tin and aluminium lifted up on the open – stimulus bets in China are building no doubt and when confirmed the cyclical bear markets on commodities over the past eight months will reverse.

However, Chinese stimulus to infrastructure hasn’t been confirmed yet and in the very near term there are other macro risks - RBA, FOMC, the BoJ, EU membership (Greece) and even the UK elections. Until these macro risks filter out the Australian market is likely to follow US caution that is creeping back into strategic thinking. I see the ASX trading sideways just under the 6000 level over the next few days.

The US session cooled at the back end of the day and failed to make another record close despite AAPL rallying over 2% during the open market before adding further upside in afterhours trading on stellar numbers. Some of the biggest investment names in the US have put sell calls on the US markets – that is an interesting change of tact and one that makes me uneasy.

Greece continues to simmering background macro issue – Europe is trading to its own issues currently and that was seen in the DAX, CAC and Stoxx 50 exploding to the upside on news Yanis Varoufakis the Greek finance minister had been benched by his own party in the negotiations with European finance ministers for a new debt deal. The rumours filtering out of Brussel are that minsters would no longer work with the Greek minister and that relationships had broken down to a point of no return – leaving the Syriza party no option but to change the negotiation team.

Greece is a simmering smouldering issue that has positive and negative outcomes – volatility will be the winner here.

My conclusions from current trade and macro risks is: momentum is still positive and to the upside, however, I am very aware of a solid pull back brewing if the risk gets to great. The
S&P sees over 31% of its listed companies reporting this week. Central bank policy remains as ever ‘accommodative’ just how much more can it add? And political influences are building to a peak (i.e. UK elections, EU-debate and the Australian budget). I caution getting overly excited in this point in the cycle. I hope I am wrong as I would like nothing more for the ASX to punch through but I feel there is real risk.

The reason for this pessimism is the banks are not filling me with confidence, heading into their numbers.  ANZ lost ground yesterday, Westpac and NAB bounced back solidly, however they lost ground last week - the normal pre-announcement surge isn’t there this year.

Maybe I am being over cynical – but if the ASX 200 is going to cross and hold 6000 point mark the banks will be a major reason for it as they make up over a third of the ASX. What is also interesting, RIO is back at levels it was trading at when iron ore was over US$100 a tonne (not $59). Yes it has cut capex and debt from its balance sheet since then, but if the iron ore price start to settle down – investors will lock it the profit here too further dragging.

Ahead of Australian open

So yes, 6000 points will be tested sometime in the next week – and yes that may be today. However, I want confirmation this level can be held and the risk in the market suggests to me that it is unlikely in the next four days. The RBA on May 5, the budget on May 12 (estimated) and the end of the US earning season are risks both positively and negatively for the ASX. And because we are trading near six and half year highs the market is going to need solid positives from these events to justify getting that next leg higher. If it is confirmed – 6200 is on its way.

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