Second Sydney cluster dampens ASX200 spirits into year end

The Christmas Rally is a term used to describe the tendency for stock markets to rally over the last weeks of December into the New Year and is thought to be fuelled by fund managers seeking to boost the performance of their favourite stocks and a desire to put  money to work for the New Year.

Even during the darkest days of December 2018, following a 15% plunge in global stock markets, the ASX200 still managed a late Christmas rally as global central bankers performed a backflip away from their previously stated intention of hiking interest rates into the escalating US-China trade war.

A repeat of 2018 appears unlikely this year following news that a second cluster of Covid19 infections has emerged in Sydney, the capital of NSW, and the state responsible for 33% of all Australian GDP.

Restrictions have now been tightened ahead of New Year’s Eve and comparisons are being drawn between Sydney’s outbreak and Victoria’s second wave which led to a 112 day, Tier 4 type lockdown in the southern state.

While there remains hope that the Sydney outbreak will be brought under control, days and possibly weeks of uncertainty lie ahead.

Quite simply markets do not like unknowns and with this in mind and based on the observation that the ASX200 has been unable to cement a toe hold above the key 6700/50 resistance area during December, we are inclined to further reduce longs in the ASX200.

The preference would be to then rebuild core longs on a corrective type pullback towards interim support 6400/6300 or wait for a sustained break above 6750/70 to indicate that the up move has regained traction and that a move towards 7000 is underway.

Source Tradingview. The figures stated areas of the 30th of December 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