Recession is yesterday’s news as ASX200 reclaims 6000

For the first time since late March, there is a vibe of “business as usual” here in Sydney. Shopping centres and roads are busy and preparation for long weekend holidays are well underway. Restaurant bookings also appear to be in hot demand, as I found out whilst trying to belatedly make a reservation to celebrate a 14th wedding anniversary this coming weekend.

Charts (3)

All of which would appear to be in contrast to news yesterday, that Australia is in recession for the first time since the early ’90s. However as we have discussed previously, the market remains focussed on the recovery. If the price action in the NASDAQ is any guide, it has voted firmly in favour of a V-shaped recovery.

This price action in the NASDAQ is in sharp contrast to the ASX200 which after a 35% rally from March lows, remains stranded 17% below its all-time high. In our last update on the ASX200 on the 21st of May, our expectation was for a continuation of the sideways trading of May, into the first half of June.

Since that point, there has been a notable de-escalation in Chinese -Australian tensions and at the same time there has been a rotation into value type stocks.

The “Big Four” banks, in particular, have done well as the faster re-opening reduces tail risk around bad debts and the return of dividend payments. Keeping in mind, financial stocks in the ASX200 account for approximately a 25% weighting, the equivalent of the FAANGS plus Microsoft in the S&P500.

With this in mind and turning to the chart of the ASX200, there appears to be an element of FOMO evident in the rally since late May. Dips towards trendline support 5700 should now be well supported before a layer of medium-term support at 5600, the level from which it recently broke higher from.

On the upside, providing the ASX200 can claim a firm toehold on the psychologically important 6000 level, there appears to be upside towards 6500, the top of the trend channel in the coming months. As such, we favour buying into dips in the coming weeks.

Recession is yesterday’s news as ASX200 reclaims 6000

Source Tradingview. The figures stated areas of the 4th of June 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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