Evening Wrap: ASX 200 dodges inflation bullet, just, as property stocks sell-off deepens, lithium bounce steepens

The S&P/ASX 200 closed 23.4 points lower, down 0.30%.

Rising market yields hobbled property stocks, but the broader market managed to largely dodge the fallout from yesterday's CPI bullet.

Tech stocks followed their US counterparts higher, and lithium's rally extended into a second day (depending one which lithium stock you're talking about...).

On that note, I have the latest in the charts for a key lithium futures contract, as well as the S&P/ASX 200, plus all the usual big moves and broker updates.

Let's dive in!

Markets

ASX 200 Session Chart

The S&P/ASX 200 (XJO) finished 23.4 points lower at 7,759.6, 1.4% from its session low and just 0.3% from its high. In the broader-based S&P/ASX 300 (XKO), advancers and decliners were perfectly evenly split at 140 apiece.

Despite what started as a terrible day, by the close, 4 of the 11 major ASX sectors closed up. Only 3 fell by more than 0.5% – Financials (XFJ) (-0.51%), Utilities (XUJ) (-0.79%) and Real Estate Investment Trusts (XPJ) (-2.1%) – not too bad. Especially considering the shock to the system with respect to market yields/rates stemming from yesterday’s CPI shocker.

These are three of the most interest rate sensitive sectors, and three of those with the most to lose if the RBA does hike rates later this year. I showed you the chart of the Australian 2-Year Government Bond Yields yesterday to hopefully put into perspective just how big a surprise the CPI was to markets.

Australian 2-Year Government Bond Yields

Why did we sell off today? Well at the time of writing of yesterday’s Evening Wrap, I noted that the 2-Years were trading with a yield of 4.208%. The chart above shows that extended to 4.288%. So, we had to factor in the difference this morning. It’s good to see today’s candle paring things back a smidge.

The other key point to remember is that Aussie and Asian fund managers reacted to the CPI yesterday. But European and US fund managers only reacted to it this morning. Importantly, it appears to former bought the dip created by the latter today.

The best performing stocks today were in the Information Technology (XIJ) (+0.74%), Gold (XGD) (+0.66%), Health Care (XHJ) (+0.35%), Consumer Discretionary (XDJ) (+0.12%), and Energy (XEJ) (+0.6%) sectors.

A bit of a hodgepodge, Tech followed gains in the Nasdaq, gold bounced (even though the gold price was down), Health Care is playing defence – makes sense, and the other two were hardly here or there.

Yesterday's winner, lithium, saw its gains extend into a second day. As you'll see from the sector performance table below, it was far from unanimous, though. Note, I've got the latest in a key lithium mineral futures chart for you in ChartWatch below.

Lithium stocks saw gains push into a second day

ChartWatch

S&P/ASX 200 (XJO)

Buy the dip = still hope!

The last time we covered the XJO was in ChartWatch in the Evening Wrap on 25 June.

That session is easy to spot, it’s the last white candle – the one which made the optimistically proclaim that a new record was in the offing.

I’ve agreed not to do that again. So, let me just discuss today’s candle and be done with it.

You know I define demand-side candles as those with white bodies and or downward pointing shadows.

The bigger the difference between the low of the candle and the close, the bigger the demand-side control manifested by the candle.

I would describe today’s candle as one that has a significant difference in this regard. We didn’t quite close up on the day, but that’s not the point of today’s candle.

Importantly, two points of demand in 7698 and 7730 have held. The dynamic demand of the long term uptrend has been respected.

It’s still a trading range. We still need to do the work and clear the wall of pesky supply between 7839 and 7911.

And in the word’s of the wise Forest Gump, that’s all I have to say about that..

Lithium Carbonate Futures (benchmark month, back-adjusted) GFEX

Switching to benchmark month, back-adjusted

The last time we covered GFEX lithium carbonate was in ChartWatch in the Evening Wrap on 19 April.

In that update, quite an interesting one from a technical perspective, the July lithium carbonate contract had printed a relatively large white candle in a tight consolidation zone.

I contemplated a close above 125k as potentially starting a new bull market versus a close below 105.8k as resuming the bear market.

History shows that white candle was the last one of any note for quite some time! It was effectively one way traffic down from there, knocking out 105.8k and several other key points of demand in the process.

The above chart shows different key levels because it has been back-adjusted. So, 125k is now 129.5k and 105.8k is now 110.3k (you might have noticed similar discrepancies in other futures charts I show there – now you know why!).

I’ve done this because the July contract has been superseded by the November contract as the most actively traded. It is common practice in futures charting when this occurs to back-adjust the prices of the outgoing benchmark by the difference between it and the incoming benchmark on the changeover date.

The two are then plotted together creating a new chart, and therefore new set of points of supply and demand. The back-adjusted portion of the chart is theoretical because the data never actually existed in space and time! But it’s common practice to use back-adjusted data as a guide, and given this is the general rule of thumb and given the vast majority of traders do so, it becomes self-fulfilling.

While some of the numbers might be different, the important thing to note is that the trends remain the same. For lithium, this means clear short and long term downtrends, it also means falling peaks and troughs, and predominantly supply-side candles (i.e., black-bodied and or upward pointing shadows). Put these together and you get supply-side control – plenty of it.

There is an important 2-day rally in progress, however, with consecutive demand-side candles on Tuesday and Wednesday. Note, today’s candle is still in progress at the time of writing, and therefore I have not shown it in the chart.

The recent rally has occurred at a credible major point of demand in the December low of 89.9k. Volume was slightly higher than recent sessions but is unimpressive. Whilst the candles are demand-side, they haven’t achieved substantial upside volatility, and when I put price action, volume, and volatility together I wouldn’t classify this as a high probability potential major low.

But there is scope for the price to continue to probe overhead points of supply – which are plentiful. 106.15k-113.95k is now the key supply zone, and above that, 125.7k-135.95k.

I propose the short term trend remains down until the price can close above 113.95k and the long term trend remains down until it can close above at least 129.5k, but preferably 135.95k.

A close below the last point of demand at 90.5k and 89.9k likely spells lights out for lithium. I don’t have any points of demand below these two because GFEX lithium carbonate futures only started trading in July last year – and there simply aren't any!.

Economy

Today

• AUS MI Inflation Expectations May

  • 4.4% vs 4.1% p.a. in April = another big inflation miss!

Later this week

Thursday

• 22:30 USA Core Durable Goods Orders May (+0.1% forecast vs +0.4% in April)

Friday

• 00:00 USA Pending Home Sales May (-7.7% in April)

• 22:30 USA Core PCE Price Index May (+0.1% to +2.5% p.a. forecast vs +0.2% to +2.7% p.a. in April)

• 22:30 USA Personal Income May (+0.4% forecast vs +0.3% in April)

• 22:30 USA Personal Spending May (+0.3% forecast vs +0.2% in April)

Latest News

Interesting Movers

Trading higher

• +19.0% Baby Bunting Group (BBN) - FY24 trading update and Investor Day Presentation

• +8.9% Core Lithium (CXO) - No news, gains in several beaten down ASX lithium stocks on 2-day GFEX lithium carbonate futures rally

• +8.6% Sayona Mining (SYA) - No news, gains in several beaten down ASX lithium stocks on 2-day GFEX lithium carbonate futures rally

• +7.4% Syrah Resources (SYR) - No news, tagged along with lithium

• +6.4% Strike Energy (STX) - Walyering-7 Flow Test Update

• +6.0% Zip Co. (ZIP) - Becoming a substantial holder, and AFR report discussing Tyndall's faith in Zip investment case (paywall), rise is consistent with prevailing short and long term uptrends 🔎📈

• +5.8% Botanix Pharmaceuticals (BOT) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +4.8% Droneshield (DRO) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

Trading lower

• -45.9% Melbana Energy (MAY) - Block 9 Alameda 3 Appraisal Update (Alameda reservoir)

• -23.0% Immutep (IMM) - Positive topline results from ph2b in head & neck cancer

• -7.2% Wildcat Resources (WC8) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -6.3% Judo Capital (JDO) - No news 🤔

• -6.0% Growthpoint Properties Australia (GOZ) - No news, falls across Property sector today on higher market yields, fall is consistent with prevailing short and long term downtrends 🔎📉

• -6.0% Mirvac Group (MGR) - No news, falls across Property sector today on higher market yields, fall is consistent with prevailing short and long term downtrends 🔎📉

• -5.9% GPT Group (GPT) - No news, falls across Property sector today on higher market yields, fall is consistent with prevailing short and long term downtrends 🔎📉

• -5.3% Imugene (IMU) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -4.8% Cromwell Property Group (CMW) - No news, falls across Property sector today on higher market yields, fall is consistent with prevailing short and long term downtrends 🔎📉

• -4.7% Dexus (DXS) - Sale of three assets, falls across Property sector today on higher market yields, fall is consistent with prevailing short and long term downtrends 🔎📉

• -4.7% APA Group (APA) - Ditto for Utilities, don't like higher market yields, fall is consistent with prevailing short and long term downtrends 🔎📉

Broker Notes

• The A2 Milk Company (A2M)

  • Retained at buy at Citi; Price Target: $7.85

• Aristocrat Leisure (ALL)

  • Retained at buy at Citi; Price Target: $53.00

  • Retained at overweight at JP Morgan; Price Target: $50.00

  • Retained at outperform at Macquarie; Price Target: $55.00 from $50.50

  • Retained at overweight at Morgan Stanley; Price Target: $52.30 from $49.50

  • Retained at buy at UBS; Price Target: $56.00

• Bellevue Gold (BGL)

  • Retained at buy at UBS; Price Target: $2.30

• Bluescope Steel (BSL)

  • Upgraded to overweight from neutral at JP Morgan; Price Target: $23.00 from $24.00

• Charter Hall Long Wale Reit (CLW)

  • Retained at neutral at Citi; Price Target: $3.50 from $3.90

• De Grey Mining (DEG)

  • Retained at buy at UBS; Price Target: $2.10

• Dexus (DXS)

  • Retained at neutral at Citi; Price Target: $8.20

• Gold Road Resources (GOR)

  • Retained at buy at UBS; Price Target: $2.55

• Healius (HLS)

  • Retained at sell at Citi; Price Target: $1.10

• Karoon Energy (KAR)

  • Upgraded to buy from overweight at Jarden; Price Target: $2.28 from $2.21

• Newmont Corporation (NEM)

  • Retained at buy at UBS; Price Target: $75.00

• Northern Star Resources (NST)

  • Retained at buy at UBS; Price Target: $18.50

• Paladin Energy (PDN)

  • Upgraded to buy from hold at Bell Potter; Price Target: $16.10 from $15.70

• Resmed Inc (RMD)

  • Upgraded to buy from outperform at CLSA; Price Target: $34.40

Scans