Second Sydney cluster dampens ASX200 spirits into year end
Tony Sycamore December 30, 2020 4:40 AM
With just one day left of trading in 2020 and for the first time in almost a decade, the ASX200 is set to finish the year without any sign of a Christmas Rally.
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
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.