Evening Wrap: ASX 200 goes out with a whimper to end dismal week as lithium & battery stocks meltdown continues

The S&P/ASX 200 closed 25.4 points lower, down 0.33%.

A disappointing end to a disappointing week for Aussie investors.

Especially after last week's gains promised so much!

Was it a case that global equities tumbled? That interest rates went up, or the propect they would, increased?

Nope, actually, it was kinda the exact opposite on all points.

So, why were we so lousy this week?

Commodities prices have plenty to do with it. But outside of that, it was just a serious failure to launch for Aussie stocks. Let's hope that next week brings a substantially better result!

Let's dive in!

Markets

ASX 200 Session Chart

The S&P/ASX 200 (XJO) finished 25.4 points lower at 7724.3, 0.36% from its session high and just 0.08% from its low. In the broader-based S&P/ASX 300 (XKO), advancers still lagged decliners by a dismal 93 to 181.

For the week, the XJO finished down 136 points or 1.7% lower, 1.7% from its intraweek high and just 0.33% from its intraweek low.

Only three of the 11 major ASX sectors finished in the black today. The Consumer Discretionary (XDJ) (+0.19%) sector was the best performer, likely in response to a continued easing in market yields. The other substantially interest rate sensitive sector, Real Estate Investment Trusts (XPJ) (+0.01%), barely broke even.

Sandwiched in between Discretionary and Real Estate was a sector that's starting to habitually find itself at the top of the sector performance list each day – Health Care (XHJ) (+0.13%). Hey – it wasn't exactly a stonking performance, but it could have been much worse – it could have been…

...Doing it tough today was the Gold (XGD) (-1.6%) sub-index. I’ve done enough technical analysis on the gold and silver charts this week to keep you appraised of why this might be the case. Resources (XJR) (-0.63%) and Energy (XEJ) (-0.63%) were again anti-twinning today, capping off a brutal week for Aussie resources investors. 📉 x 2 👇

S&P ASX 200 Energy Sector Index (XEJ) chart

S&P ASX 200 Resources Sector Index (XJR) chart

While there wasn't any clear patten among the day's biggest winners, as you will see when you get to the Interesting Moves section below, there was a clear theme among the losers.

Me telling you just how bad the plight of lithium and battery materials stocks has become isn't going to result in you learning something new. Also, me putting a table below this paragraph containing the biggest fallers across lithium/battery materials isn't going to make anyone feel better. So I won't.

But I will say one thing and then shut up for the week (well, apart from the other stuff I've written below). When I took over the Evening Wrap about 6 months ago, I made it a point to write in the Interesting Moves lists "rise is consistent with prevailing short and long term uptrends 🔎📈" or "fall is consistent with prevailing short and long term downtrends 🔎📉" where appropriate.

It's not 100%. But have you noticed how many times I write the former in the gainers list and the latter in the losers list? Hey, you do you when it comes to your investing. But there's a good reason I will always continue to follow the trend...

ChartWatch

Lumber Futures (Front month, back-adjusted) CME

Timmmmmberrrrr! 🌲🪓

This is not one I’ve covered before, but as I was flicking through my watchlist charts today it (and the one below) caught my attention the most.

Firstly, it’s just such a fantastic showing of excess supply. There’s a wall of supply in the short term (i.e., a short term downtrend, falling peaks and falling troughs, and predominantly supply-side candles (black-bodied and or upward pointing shadows)).

Add to this the long term trend is also down, and finally, note that potential key points of demand appear to offer zero resistance to the prevailing downtrend.

(Note I deliberately used the word “resistance” here to describe the price slicing through what other technical analysts would ordinarily call “support”. This is why the words support and resistance are two of the most commonly misleading and misused words in technical analysis!).

In summary, I can’t see a skerrick of information in the chart to suggest the prevailing downtrends cannot continue.

So what?

I hear you say...

BHP, RIO, SFR, PLS…just checking…um nope, none of my stocks produce lumber, Carl. Why are you wasting my time on a Friday evening? (Reaches for beverage, or remote control, or both!)

Here’s why the Lumber chart matters:

"Construction is the primary demand input for softwood lumber in the USA. Housing starts issued on a monthly basis with a 1-month lag, is thus an important indicator for lumber markets." –CME Group

The US housing market is crucial to the US economy for two reasons:

1. It is a major employer within the US economy (jobs = wages = spending = company profits)

2. The wealth effect from the US housing market is a major stimulant of consumer spending and economic growth

I’ll let you draw your own conclusions from the chart above, but I suggest something possibly ‘aint quite right here...Timmmmberrrrr! 🌲🪓

SSE Composite (SSEC) (China)

Chinese stocks appear intent on making downtrends great again

This is the other chart that caught my attention today. I last covered it in ChartWatch all the way back on 26 April. If you read my article today on base metals, you would have seen my concession that I called a new bull market in nickel too early.

The chart above is beginning to strongly suggest I was also too early in calling the new uptrend in Chinese stocks on 26 April. I put to you, however, both charts are inextricably linked, and therefore to get one wrong kinda guarantees also getting the other wrong.

Consider this chart in conjunction with that nickel chart from the other article, along with the sharp pullbacks in copper and aluminium also shown therein.

Chinese stocks appear intent on making downtrends great again. And that probably isn’t good for commodity prices, our resources stocks, and eventually, our economy.

I hope I’m wrong and the price of the SSE Composite can quickly regain the long term trend ribbon. It will also need to revert to rising peaks and rising troughs as well as demand-side candles.

But, alas, I suggest that if prevailing trends continue to evolve towards supply-side control, and the SSE Composite closes below the 28 March low of 2984, it will indeed be back in a long term downtrend.

Economy

Today

• Bank of Japan Policy Rate & Monetary Policy Statement

  • No change as forecast. Official policy rate remains <0.1%

Later this week:

Saturday

• 00:00 USA Prelim UoM Consumer Sentiment May (forecast 72.5 vs 69.1 April)

Latest News

Interesting Movers

Trading higher

• +10.3% Zip Co. (ZIP) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +10.1% Tabcorp (TAH) - NSW Government Review

• +6.5% Botanix Pharmaceuticals (BOT) - No news, continued positive response to Wednesday's Final Sofdra Labelling Discussions with FDA, rise is consistent with prevailing short and long term uptrends 🔎📈

• +5.5% Life360 Inc. (360) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +5.0% Judo Capital (JDO) - Change in substantial holding (increase), rise is consistent with prevailing short and long term uptrends 🔎📈

• +4.9% Tyro Payments (TYR) - No news 🤔

• +4.9% Alpha HPA (A4N) - No news 🤔

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

• +4.0% Superloop (SLC) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +3.8% Mayne Pharma Group (MYX) - No news 🤔

• +2.8% Dalrymple Bay Infrastructure/Notes (DBI) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +2.7% Ora Banda Mining (OBM) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +2.7% Austin Engineering (ANG) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

Trading lower

• -18.3% Opthea (OPT) - Opthea Completes Placement & Institutional Entitlement Offer, fall is consistent with prevailing short and long term downtrends 🔎📉

• -7.3% Resolute Mining (RSG) - No news, another tough day for ASX gold stocks

• -7.0% Latin Resources (LRS) - Ditto for ASX lithium stocks, lithium minerals prices keep falling, and the reality appears to be sinking in here…

• -7.0% Deterra Royalties (DRR) - Investor briefing call - Offer to acquire Trident Royalties, fall is consistent with prevailing short and long term downtrends 🔎📉

• -4.6% Orora (ORA) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -4.6% Chalice Mining (CHN) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -4.3% Vulcan Energy Resources (VUL) - Lithium…tough day

• -4.1% Liontown Resources (LTR) - Ditto, fall is consistent with…do I really need to say it…?

• -4.1% Block Inc. (SQ2) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -3.9% Emerald Resources (EMR) - Gold…tough day

• -3.8% Syrah Resources (SYR) - Graphite / battery materials etc…tough day…mother of all short and long term downtrends here…🔎📉

• -3.7% Arcadium Lithium (LTM) - Ditto on mother of all short and long term downtrends here…🔎📉

• -3.5% IGO (IGO) - I tried to fix this chart…but…

Broker Notes

• 29METALS (29M)

  • Retained at neutral at Citi; Price Target: $0.55 from $0.45

• Ampol (ALD)

  • Retained at outperform at Macquarie; Price Target: $37.00 from $40.35

• ARB Corporation (ARB)

  • Initiated at sell at UBS; Price Target: $34.00

• ASX (ASX)

  • Retained at neutral at Citi; Price Target: $61.90 from $65.90

  • Retained at sell at Goldman Sachs; Price Target: $55.45

  • Retained at negative at Jarden; Price Target: $61.10 from $63.70

  • Retained at hold at Jefferies; Price Target: $55.00 from $65.00

  • Retained at neutral at JP Morgan; Price Target: $59.00 from $66.50

  • Retained at neutral at Macquarie; Price Target: $60.50 from $63.00

  • Retained at sell at UBS; Price Target: $55.00 from $56.00

• Bapcorp (BAP)

  • Bapcor (BAP) downgraded to hold from add at Morgans; Price Target: $4.95

• Bega Cheese (BGA)

  • Retained at buy at Bell Potter; Price Target: $5.35 from $5.00

• BHP Group (BHP)

  • Retained at buy at Citi; Price Target: $48.50

• Champion Iron (CIA)

  • Upgraded to buy from outperform at CLSA; Price Target: $7.90 from $7.20

• Collins Foods (CKF)

  • Retained at sell at Citi; Price Target: $10.60

• Corporate Travel Management (CTD)

  • Upgraded to buy from hold at Jefferies; Price Target: $16.00 from $17.50

• Domino's Pizza Enterprises (DMP)

  • Retained at buy at Citi; Price Target: $44.50

• Endeavour Group (EDV)

  • Retained at neutral at Citi; Price Target: $5.94

• Evolution Mining (EVN)

  • Retained at buy at Citi; Price Target: $4.50 from $4.40

  • Retained at buy at UBS; Price Target: $4.45 from $4.60

• Jumbo Interactive (JIN)

  • Upgraded to outperform from neutral at Macquarie; Price Target: $17.45 from $17.15

• Meteoric Resources (MEI)

  • Retained at buy at Bell Potter; Price Target: $0.50

• MMA Offshore (MRM)

  • Retained at hold at Bell Potter; Price Target: $2.60

  • Retained at buy at Citi; Price Target: $3.00

• Qantas Airways (QAN)

  • Retained at outperform at CLSA; Price Target: $6.90 from $6.50

  • Retained at buy at Goldman Sachs; Price Target: $8.05

  • Retained at buy at Goldman Sachs; Price Target: $8.05

  • Retained at outperform at Macquarie; Price Target: $6.00

  • Retained at sector perform at RBC Capital Markets; Price Target: $6.75 from $6.25

• Reece (REH)

  • Initiated at sell at Goldman Sachs; Price Target: $23.35

• Rio Tinto (RIO)

  • Retained at neutral at Citi; Price Target: $137.00

• South32 (S32)

  • Retained at neutral at Citi; Price Target: $4.00 from $3.65

  • Retained at buy at UBS; Price Target: $4.15 from $3.90

• Sandfire Resources (SFR)

  • Upgraded to neutral from sell at Citi; Price Target: $8.90 from $7.90

• Sigma Healthcare (SIG)

  • Retained at neutral at Citi; Price Target: $1.30

  • Retained at underperform at Macquarie; Price Target: $0.90

• Seven Group (SVW)

  • Retained at buy at Bell Potter; Price Target: $45.00 from $44.30

• The Lottery Corporation (TLC)

  • Upgraded to outperform from neutral at Macquarie; Price Target: $5.50 from $5.25

• Telix Pharmaceuticals (TLX)

  • Upgraded to buy from hold at Bell Potter; Price Target: $19.00

• Treasury Wine Estates (TWE)

  • Retained at neutral at Citi; Price Target: $12.40

• Viva Energy Group (VEA)

  • Retained at outperform at Macquarie; Price Target: $4.40 from $4.70

Scans