A fifth week of losses likely for the ASX 200

We need to see a close above 5339 to avoid a fifth weekly loss on the ASX 200, a fate we haven’t seen since September 2014. This seems unlikely given the event risk next week.  

  • The bulls have wrestled some sort of control back in US equity indices, but with the S&P 500 closing at 2147 there is still a good amount of technical work to be done for the bulls to fully be control. The NASDAQ 100 is still the index of choice for trading markets on the long side and new highs in tech are surely a matter of time.
  • Traders should watch price into the 2169 to 2177 gap from Monday's open of the S&P 500. A move into 2177 (Thursday's low) is a reasonable possibility given it's only 1.2% away, but whether traders look to sell the index into this level is what many will be watching. Whether the S&P 500 can make a new all-time high will largely be determined by how traders react to these key levels.
  • On the downside, the 100-day moving average at 2122 has contained the selling. For whatever reason, until this longer-term average is broken, traders will be happy to hold long positions with stops below this average.
  • Apple is right at the heart of this, hence the NASDAQ looking so strong and tech putting in seven of the S&P 500’s 21 point rally. Traders have been compelled to buy given comments from T-Mobile and Sprint about the demand for the iPhone 7 being four times higher than prior model releases. Apple has rallied 12.9% in the last five days and looks very attractive on most time frames.
  • US data was fairly poor on average. August retail sales fell 0.3%, and the retail control group (sales that feed into Q3 GDP print on 28 October) fell 0.1%. Industrial production was a disappointing -0.4% and as such the Atlanta Fed Q3 GDP tracker has fallen to 3% from 3.3%. On a positive note, the Philadelphia Federal manufacturing data was strong at 12.8.
  • Anyone still left calling for a September hike next week from the US Federal Reserve (Fed) must be feeling a bit hot under the collar after further signs of economic vulnerabilities. I would say there is a 5% chance of a hike next week at best.
  • With fixed income at the heart of trader’s mindsets it’s no surprise to see reasonable buying in the short to medium duration US treasuries (given the data), while the longer end of the curve hardly moved. The US dollar index is largely unchanged on the day as well.
  • AUD/USD has moved higher through US trade, reclaiming the 31 August low of $0.7490 as a result of positive moves in equities and poor US data. The session high has been $0.7522 and the five-day moving average seems to be containing the rally. Traders will often sell into this short-term price average in genuine downtrends, so FX traders will be watching developments here today.
  • The ASX 200 is shaping up for an open some 0.8% higher at 5284. BHP and CBA should open 1.4% and 1% higher respectively (based on their American Depositary Receipt), so a positive end to the week is expected. CBA is at the heart of the ASX 200 move of late and is our equivalent of Apple as a market leader. Key resistance on CBA is $72.90 (the former April uptrend), so a break of this level should keep the momentum going.

US equities have found signs of life, with tech leading the charge. The NASDAQ 100 is the strongest market. For traders wanting to express a bullish bias, this should be the weapon of choice. Apple is clearly at the heart of the rally and it seems the recent reduction in institutional holdings has got a few caught short on this move higher. The S&P 500 still needs to break 2177 to get me excited about the world institutional equity benchmark making a new all-time high. Until then, I am happy to watch price action and see how the land lies.

The ASX 200 should see an extension of the recent gains and I don’t want to say we have been leading, but it’s great to see the ASX 200 doing its own thing. While we will always price in overseas moves (given the reaction function of the SPI futures), local investors have certainly acted with a certain composer. A rally into 5284 should be seen on open, but a fifth week of losses seems assured unless we can find an extra wind to take us through last week’s closing price of 5339 - but that would need to be some tail wind! We haven’t seen five consecutive weekly loses since September 2014.

The bigger question remains on what the Fed will say next week and what the Bank of Japan will do (or not do), in what promises to be a crazy 24 hours of central bank watching on Wednesday. USD/JPY will be the keynote currency to watch next week.

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