6 things Australian traders will be talking about this morning

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The ASX had a great day yesterday, abandoning the pessimism of futures traders and a weak US lead for the second session in a row. That saw the market finish marginally in the black. The gain on the ASX200 might have only been 2 points with a close at 5109. But it was symbolic of traders not wanting to sell at these levels.

Today could be another positive day, with SPI 200 futures pointing to gains of 20 points on the back of what ended up a reasonably positive gain in the bellwether S&P 500 which lifted 0.69%. That gain in the S&P and accompanying lift of 0.72% in the Dow was despite the fact that oil dipped again to an 11-year low before recovering a little in New York trade.

On currency markets, the US dollar was a little weaker with euro gaining 0.5% which helped the Aussie rally 0.25%. Iron ore is up again, gold rallied $12 to $1,078 and copper rallied 1.3% to $2.13 a pound.

So, the scoreboard (8am):

  • Dow: 17,251.75, +123.20 (+0.72%)
  • S&P 500: 2,020.35, +14.80 (+0.69%)
  • SPI200 Futures (March): 5079, +11 (+0.2%)
  • AUDUSD: 0.7180 +0.0014 (+0.25%)

And now the top stories:

1. Whatever happened to this so-called ‘Santa Claus rally’? Elena Holodny from BI US has been trying to get to the bottom of the much hoped for Santa rally. It seems the focus has now changed from a mid month start to next week, in the Christmas-New Year trading period when we are all at the beach playing cricket and US traders are in the Hamptons.

But if you own stocks, you’d better hope Santa comes because “when the rally is not realised, the New Year is dominated by the bears”.

Oh and speaking of stocks, Sam Ro says that breadth in the US stock market is unusually shallow. That’s not good. Here’s why.

2. Goldman Sachs still reckons Australian growth will be weak in 2016. Tim Toohey, Goldman’s Australian chief economist, and his team continue to be, in their own words, “well below consensus for economic growth in 2016”. Paul Colgan has a wrap of their outlook for the Australian economy in the year ahead. It includes 2% interest rates, a tough economic transition and “unwinding” of recent gains in employment. Sobering reading, adult beverage advised.

3. Is China about to unleash a wave of corporate bankruptcies? There is little doubt the current leadership in Beijing is serious about reforming their economy. If they are successful, they’ll be revered in the way Chairman Mao is. But it’s a hard row to hoe, replete with dealing with corrupt, bloated sections of the economy. But Linnette Lopez from BI US reports overnight that China announced measures that “will create conditions for execution of bankruptcy procedures based on market rules, and speed up trials of bankruptcy liquidation cases…”

As Lopez says, that could be a game-changer for Chinese companies. But it could also be a game-changer for global markets in 2016 given the high levels of debt and junk bonds issued by Chinese firms.

Just another Chinese grey swan to watch in 2016.

4. Yoda would have made a great investor. There is no avoiding “Star Wars: The Force Awakens” at the moment. That’s inspired the folks at hedge Fund Citadel to release an epic conversation about Star Wars. It looks at how they bet on a hit, how movies are financed and also why Yoda would be a great investor.

Cirtadel’s Joe Pasqualichio says that because, “He’s wise, patient, has an extremely long-term outlook — I think he’d be able to find significant alpha!” Very Buffetesque.

5.Spain is Europe’s next point of pain. The early part of 2015 was dominated by the Greek election of Syriza and then the negotiations to keep Greece solvent and in the EU. It was a fractious period for markets. But Greece is tiny in economic terms, so in the end a resolution was found.

Spanish elections on the weekend might just have delivered markets a fresh European point of pain with no clear winner and, according to Soc Gen analysts, a long road to build a coalition and even then the real chance of fresh election. That meant Spanish bonds were sold reasonably heavily last night before recovering to be up just 10 points on the 10-year at 1.79%. Spain isn’t Greece and the catalysts for a market dislocation are not in evidence. But traders will be keeping an eye on how things play out in the months ahead.

6. The junk bond carnage is not over yet. Speaking of junk bonds, the market is under intense pressure and there is no sign, as we head toward the close of the year and banks need to clear the decks, that the pressure will abate. I’ve had a closer look here.

This is my last 6 things for 2015, I’ll be back on January 4, 2016. Thanks for reading and have a great Christmas and stay safe.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Apple
Apple’s stock price has been under pressure recently as analysts downgrade their iPhone 6 sales estimates. Theoretically the stock has returned to a forward PE multiple of around 11, although this probably reflects the fact that earnings estimates are now below the published consensus.

If the current decline is just about a temporary wobble in sales then, from a chart point of view, a correction of the “B” to “C” rally looks the most likely alternative. Retracement levels for this alternative might be $103.50/$104 or perhaps $98.90.

However, it would not be difficult to make a much more bearish case looking at the long term monthly chart below. Having completed, a major 5 wave advance, Apple could be in for a pretty substantial correction. The stochastic indicator in the box below the chart is heading south, just like it did in the last 2 major corrections.
The last two major corrections bottomed just through the 40 month moving average. It’s interesting to see potential trend line support and a harmonic AB=CD level lurking just below that average. This all implies a move back to something like $82-$90.

Perhaps the best way to look at this is not so much a prediction that Apple will get back to these levels but to keep in mind that charts are indicating the market is positioned to deal pretty harshly with Apple if it does disappoint in coming months.

Ric Spooner, chief market analyst, CMC Markets

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