Aussie stocks finished the quarter on a weak note yesterday. But overnight, US markets rallied, finishing the quarter on a strong note.
From the Wall Street Journal:
‘U.S. stocks turned in a second consecutive quarter of dramatic gains, continuing a historic stock-market recovery that few predicted in the depths of the March downturn.
‘The S&P 500 and Nasdaq Composite hit a string of records in the third quarter, a journey that has confounded many investors with its sheer velocity and strength. Despite a stretch of volatility that dampened momentum in September, the S&P 500 and Dow Jones Industrial Average gained 8.5% and 7.6%, respectively, over the past three months.’
When the Aussie market fell sharply yesterday, the narrative was that it was all because of the Trump–Biden debate.
I guess it has nothing to do with the increasing realisation that the sharp, stimulus-driven recovery is not looking so V-shaped these days?
The debate excuse fizzled out with the positive turn in US markets. Apparently, the market warmed to the fact that there ‘might be’ a resolution on the massive fiscal stimulus plan currently held up in the US Senate.
Good luck with that. Both sides are currently at war, desperately trying to gain the upper hand to win the election.
Not that my opinion matters, but I still expect a Trump victory in November. Many voters may not like Trump, but they probably like a far-left establishment figure like Biden even less. He’s from the same camp as Hillary Clinton. A career politician who is nothing more than a puppet.
The only people who really believe Trump is a white supremist kitten drowning dictator are those suffering from acute TDS (Trump Derangement Syndrome). They would vote for Satan himself if Trump was the opponent.
Most TDS sufferers are in the mainstream media, which tends to amplify the anti-Trump message, along with the ‘polls’.
So keep in mind Trump has a much better chance than our intellectual superiors would like to tell us.
But I digress…
Despite US markets having a good third quarter, it was all front loaded. From 1 July to the peak on 2 September, the S&P 500 jumped almost 15%. But since then it’s given some of that back.
As you can see in the chart below, the recent correction saw the S&P 500 bounce off the 100-day moving average. Technically, the upward trend is still intact. However, there are early signs of a shift taking place.
You can see that in the longer-term weekly chart below. I’ve also added the RSI, a momentum indicator, at the foot of the chart. Note how, as prices have moved higher, the peak in RSI has been progressively lower.
Price and momentum divergence aren’t always bearish. But they’re an important indicator when combined with other factors.
Aussie Stock Market in for a Wild Ride
Fundamentally, the market is highly risky right now. A handful of tech stocks are behind the gains, meaning capital is very concentrated. And there is evidence of increasing speculation, despite the very weak economic environment.
Wall Street on Parade reports:
‘Conjuring up another era of “irrational exuberance,” data from Wall Street’s self-regulator, FINRA, shows that margin debt has grown by 15 percent since the end of January to a total of $645.5 billion as of August 31 of this year. That’s very close to the prior record of $668.9 billion set at the end of May 2018, according to the FINRA database.’
I’m looking for this rally to falter at or before 3,400 points on the S&P 500. From there, a breach of the recent low around 3,230 will see this sell-off gather pace.
The Aussie market, in contrast, looks much sicker.
The ASX 200 didn’t recover anywhere near the extent of the major US indices. And it’s already turning back down, as you can see below…
This is not a bullish-looking chart. Ironically, Aussie blue chips are — again on average — much better value than US stocks. But our economy is in much worse shape.
But…but…what about China? Hasn’t it recovered faster and stronger than everyone else from the virus that they let loose on the world?
Well, yes. But only by hijacking the banking system to create another torrent of unproductive debt, which should become apparent (once again) in the coming months.
It’s already showing up in the share prices of the iron ore miners, BHP and RIO. And Orica, the company that provides these miners with explosives (amongst other things) also has a sick-looking share price. It fell nearly 3.5% yesterday and is at the lowest level since late March.
The market has bounced today on the positive move in the US market. But to me, the index looks like it wants to move lower.
So buckle up, we could be in for a wild ride over the next few months.
Editor, The Rum Rebellion
PS: In a brand new report, market expert Vern Gowdie warns of the dangers waiting in a post-COVID-19 world. Plus, he outlines the steps you should take now to protect your wealth. Learn more.