ASX to decline – A bullish response expected

January 22, 2021 - 1 month ago
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Australian shares are poised to open lower as Wall Street ends the daily session mixed and barely above the waterline.

The major averages struggled for direction on Thursday, as large-cap technology continues to trend higher.

Most sectors in the S&P 500 index were lower, led down by Energy shares.

At the finishing bell, on the New York Stock Exchange (NYSE), the Dow Jones Industrial Average slipped -12.37 points, or -0.04%, while the broad-based Standard & Poor’s 500 Index gained less than +0.1% to 3,853.07, eking out another fresh high.

The rich-tech Nasdaq Composite rose +73.67 points, or +0.55%, to 13,530.92.

Apple and Facebook have risen +7.7% and +8.6%, respectively, this week ahead of their quarterly results, while Microsoft has gained +5.8%.

The ASX futures slid -24 point, or -0.4%, to 6,748, while our local currency, the Australian dollar is currently buying US$0.7760 (as of writing).

Wall Street closed at record highs in the previous session as President Joe Biden was sworn into office, accompanying hopes that an improved vaccine rollout will ensure a smoother and faster reopening.

Biden released details of his COVID-19 plan on his first full day in office, including ten executive orders and his intent to use the Defence Production Act to ramp up protective equipment production.

Thursday’s action came after a better-than-expected reading on jobless claims.

The number of Americans filing new applications for unemployment benefits decreased modestly last week.

Initial claims for state unemployment benefits totalled a seasonally adjusted 900,000 for the week ended Jan. 16, compared to 926,000 in the prior week, the Labor Department said on Thursday.

Economists had forecasted 930,000 applications in the latest week.

Viewing the technical standpoint for the S&P/ASX 200 (XJO), the Relative Strength Index (RSI) 3-day ‘lookback’ indicator, at present, is mixed since backing away from the overbought area.

Meanwhile, the Moving Average Convergence Divergence (MACD) has broken above the 0.00 axis, and presently supports a ‘weak’ positive signal.

The Average Directional Movement Index (ADX) trend indicator is ranging.

Developed by J. Welles Wilder, the Relative Strength Index (RSI) is an extremely popular momentum indicator (oscillator) that measures the speed and change of price movements.

RSI oscillates between zero and 100.

According to Wilder, (depending on the period setting), the RSI is considered overbought when above 90 and oversold when below 10.

Signals can also be generated by looking for divergences, failure swings and centerline crossovers.

RSI can also be used to identify the general trend.

Gerald Appel developed the (MACD) technical indicator back in 1979, while in 1986, Thomas Aspray added the histogram.

The MACD is a tool used to identify moving averages that indicate a new trend, whether bullish or bearish.

(MACD) plots the distance between moving averages and helps traders identify trend direction and whether the bullish or bearish momentum in the price is strengthening or weakening.

Due to the (XJO) firmer price action, along with the RSI advance, now support additional guidance for the bulls to the journey of challenging the resistance 6,845. Reassess from there.

The minor support is located at 6,775, with a potential base now viewed from 6,640-60.

A bullish response is expected from here if challenged.

Daily outlook on the benchmark S&P/ASX 200

Thursday’s price action witnessed the ASX bulls reclaim the 6,800 thresholds for the first time since late February, as the inauguration of U.S. President Joe Biden lifted expectations for a return to a stable global trade environment and government stimulus.

Former President Donald Trump left office on Wednesday, as President Joe Biden took the oath of office to become the 46th U.S. president and Vice President Kamala Harris was sworn in as the first female in U.S. history.

Investors took comfort the new president took office safely after outgoing president Donald Trump’s supporters attacked the U.S. Capitol earlier this month.

At the closing bell, the benchmark S&P/ASX 200 index rose +53.3 points, or +0.79%, to 6,823.7, leaving the benchmark 5.2% below the record high set-in mid-February last year at 7,197.20.

Meanwhile, the All Ordinaries closed higher +56.1 points, or +0.80%, at 7,107.1.

On the New York Stock Exchange (NYSE), the broad-based Standard & Poor’s 500 Index gained +52.94 points at the finishing bell on Wednesday, or +1.39%, to 3,851.85, topping its previous all-time high set earlier this month.

According to news sources, the S&P 500’s gain was the best on any Inauguration Day since the start of Ronald Reagan’s second term.

The Dow Jones Industrial Average, Nasdaq composite also notched record highs, fuelled by gains in technology, communications, health care and most other sectors.

The Dow Jones Industrial Average rose +257.86 points, or +0.8%, while the rich-tech Nasdaq Composite jumped nearly +260.07 points, or +1.97% respectively.

Back home, the picture for earnings in Australia also firmed with the latest labour force report supporting expectations of a quick return to pre-pandemic activity.

Australia’s jobless rate ticked lower to 6.6% in December to hit the lowest level since April versus expectations for a decline to 6.7% from November’s 6.8%, according to the Australian Bureau of Statistics (ABS).

A sizeable portion of the jobs added was in part-time employment at 14.3k versus 35.7k full-time jobs following December’s 84.2K.

The data released is not expected to shift the Reserve Bank of Australia (RBA) dovish bias.

The central bank kept its cash rate unchanged at a record low of 0.1% in December and reiterated its promise to do more easing if necessary.

Technology continued to lead the local sharemarket higher with the buy now, pay later sector driving the gains.

The bulls haven’t letup on Afterpay as Thursday’s rally adds +5.67%, to post (yet) another record close, at $149.00, while US-based Sezzle advanced +7.3%, and settled at $7.31.

Zip Co shares soared +23.1%, to $7.36 after a second-quarter update showed an +88% increase in revenue compared with the year-earlier period.

The Financial sector lifted the ASX also, with National Australia Bank Group taking the lead from the “Fab Four” (banks) after rising +1.63%, and closed at $24.30, Australia and New Zealand Banking Group added +1.14%, to $24.71, with Westpac Banking Corp advanced +1.11% to $21.82, while Macquarie Group added +0.73%, to settle at $139.45.

Besides Information Technology and Discretionary, the materials sector had the most notable rise of +1.06%, as our local major miners lifted the index, with Rio Tinto leading the titans higher after rising +1.74% to $121.88, while BHP Group rose +1.56% to $47.02, and Fortescue Metals Group added +0.16% to $24.87.

Meanwhile, South32 shares eased -0.4%, to $2.66 despite warning investors of cost pressures, and Alumina shares fell -1.9%, to $1.77.

As for our oil and gas producers, Woodside shares slid -1.64%, to $26.95 amid sector weakness and a fourth-quarter report that featured a -2% slump in production for the prior period.

Oil Search slipped -0.22%, to $4.44, Origin Energy added +1.16%, to $5.23, AGL Energy and Santos ended flat at $11.86, and $7.40, respectively.

Link Administration added +1.5%, to close at $4.81 after it reported first-half operating earnings before interest and tax of $79 million.

Investors had previously been told to expect $77 million.

Vicinity Centres securities lost -2.5%, to $1.545 after the shopping centre landlord advised investors that its portfolio of properties fell in value.

The 60 directly-owned retail assets in its portfolio, including CBD exposures, were revalued lower by -4% to $570 million news sources reported.

Cleanaway Waste Management fell -8.5%, to $2.38 after announcing that chief executive Vik Bansal will step down after five years in the role.

In other news, Queensland announced it would relax Greater Brisbane restrictions after a tenth day without local COVID-19 transmissions.

New South Wales and Victoria also recorded zero locally acquired cases.

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