ASX200 stalls after a 7% rally in 7 days

A milestone of sorts yesterday as the AS200 reached the top of a four-month range, after a 7% rally over the past 7 trading sessions. In our last update on the ASX200 in early October we wrote:

Charts (4)

“The gradual re-opening of the Victorian economy, the boost from the Federal Budget, and a November cut from the RBA, is expected to see the ASX200 hold support and retest the top of the range, 6200 area.

Further proof of how important the Federal Budget has been in restoring sentiment and the fortunes of the ASX200 was on show this morning in the form of stronger than expected Westpac Consumer sentiment data (from 93.8 to 105 in October).

The survey was taken shortly after the release of the budget and for the first time in 10 years, more respondents thought they would be better off after the Budget. A result of bringing forward personal tax cuts and a strong focus on job creation, investment and spending.

The Budget should remain supportive of household sentiment in the medium term and encourage households to spend, thereby reducing elevated savings levels. This in turn should flow through into business confidence and hiring.

In the short term, and as the overnight session highlighted, offshore uncertainties remain including the U.S election, prospects of a U.S. fiscal stimulus deal, Brexit, and vaccine trials being put on hold.

Closer to home, it’s unclear whether China has directed its steel mills and power stations to suspended imports of Australian coal after reaching its 2020 quota. Or if it represents another escalation in diplomatic tensions between China and Australia. Let’s hope it is the former.

Taking into account the factors outlined above, it would be prudent for those who bought the dip towards range lows ahead of the Budget to take the opportunity to lock in some partial profits here near 6200.

The plan would be then to add to core longs on a dip back towards range lows 5800/5700 or add to core longs on a sustained break above 6200, looking for a rally towards 6600 into year-end.

ASX200 stalls after a 7% rally in 7 days

Source Tradingview. The figures stated areas of the 14th of October 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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