The Overnight Report: Bulls Back In Charge

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All is forgiven and the local bourse is set for a broad-based positive opening today.

By Chris Weston, Head of Research, Pepperstone

Good morning.

They say investing is about “time in the market, not timing the market“.

Well for traders, one could argue this statement couldn’t be further from the truth, where traders need to be selective with their time in the market, holding the patience to execute the higher probability set-ups and price action when it presents itself. Managing an open position is an art in itself timing is critical, especially for those utilising leverage to take a position.

However, we also know that it’s okay to be wrong in trading, but you need to know you’re wrong and manage that loss unemotionally and quickly. Trading is about the probabilities seen in a market at that point, and assessing where the market has the greatest potential to move to, knowing that the market will go where it wants to go on any given timeframe, and flow and sentiment are the most influential short-term drivers.

As we close out US trade and look towards Asian trade, we can see this dynamic first-hand through the moves across markets and while many try to justify what has played out, the rally in US equity has certainly surprised.  

US equity was coming off a sharp liquidation last week, with tech and semis having a shocker, which one can justify that sell-down not just through a grossly saturated positioning, but by hawkish comments from both Biden and Trump towards Taiwan and big tech.

In the daily battle between supply and demand, the bulls have certainly wrestled back some control here, and I’d argue the probabilities of a further push higher in the NAS100, US2000, and S&P500, and through Tesla and Alphabet earnings (aftermarket in the session ahead), look fairly high.

Overnight, the result was 1%-plus rallies in the NAS100, S&P500, and Russell 2k, while the Dow closed +0.3%. Tech drove the moves, with consumer service names also working, and while 78% of stocks closed higher, it was energy that lagged a full reversal of what we saw late last week.

The talk on the floors remains centred on the US election and we’ve seen a further wave of endorsements for Kamala Harris, notably from Nancy Pelosi and Chuck Schumer with Joe Manchin detailing he will not run for the Dem nominee, the list of potential challengers to Harris becomes even more scarce, and the prospect of the Democratic party uniting around Harris into the National Convention in August subsequently increases.

The prediction markets place Harris’s chance at 41% (Trump at 60%), and the risk is this could tighten further, but that depends on the team she can forge around her, and notably if Harris can convince Pennsylvania Gov Josh Shapiro to be her running mate.  

Still, it’s hard to say if US election dynamics had any real effect on the cross-market moves we’ve seen and with limited economic data, this likely speaks more to positioning and to flow than traders really sinking their teeth back into Trump Trades’ or alike.

Moves in US Treasuries have been contained, and this has lent to a small net change in gold and silver.

Looking ahead to the Asia open and given the moves in US equity, our opening calls look constructive, with broad-based gains expected. The ASX200 eyes an open closer to 8000, and I am enthused by the pullback to the former breakout point (28 March high), with the buyers stepping in to confirm this as support. We look to see if the buyers can now build on the positive open a close above 8k would be a small but welcomed win for the bulls.

By way of event risk, on the data side growth comes into the spotlight, with PMIs seen in Australia, Japan, Europe, the UK, and the US, and notably the EU and US PMIs could move the dial in EUR, USD, and the respective equity markets.

The Bank of Canada meets. On the earnings side, Tesla, Alphabet and Visa report after market, and given the elevated implied volatility in these names one can expect some lively price action after hours.

On the calendar today:

-Atlas Arteria ((ALX)) Quarterly update

-Black Cat Syndicate ((BC8)) AGM

-Iluka Resources ((ILU)) Quarterly update

-Lynas Rare Earths ((LYC)) Quarterly update

-Woodside Energy ((WDS)) Quarterly update

-US June existing home sales

Corporate news in Australia:

-Rare earths miner Axel REE ((AXL)) is due to hit the ASX boards at 10.30am this morning, after raising $13.3m from investors

-Toll road operator Transurban Group ((TCL)) has partnered with the Queensland government to widen the western section of the state’s Logan Motorway

-Barrenjoey is preparing to sell a $2bn stake in CDC Data Centres

-Western Australian gold miner Ora Banda ((OBM)) produced a record amount of gold in the last quarter

-Cromwell Property Group’s Australian portfolio value fell by -$115.5m over six months due to challenging conditions and higher interest rates

-LTR Pharma ((LTP)) $8m capital raise following positive trial results

-South32 ((S32)) to write down its Worsley alumina business

-Woodside Energy ((WDS)) to acquire Tellurian, including its Driftwood LNG project

-Anteris Technologies ((AVR)) raising $40m to develop its DurAVR THV heart valve product

-Yesterday, traders did not like DroneShield’s ((DRO)) H1 market update

-Insignia Financial ((IFL)) shares gained as management upgraded its profit guidance

-Whitehaven Coal ((WHC)) shares dropped following quarterly update with disappointing guidance

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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