Evening Wrap: ASX 200 ignores China stocks recovery, as Nick Scali and Myer beat expectations

The RBA was on hold today, and in many ways, so is the S&P/ASX 200's record breaking advance. But, I think given how sketchy Aussie stocks looked yesterday, the 47 point drop today will go down in the "manageable" column.

There were some highlights, particularly Nick Scali Ltd (ASX: NCK) (+16.6%) which popped on a better than expected first half result, and Myer Holdings Ltd (ASX: MYR) (+14.3%) which benefitted from a well received trading update. Elsewhere, big energy and the mercurial uranium sector were also notable winners.

Tech and mining companies were the worst, not helped by higher market yields and lower metals prices respectively.

Let’s dive in!

Markets

ASX 200 Session Chart

Another disappointing session for the ASX 200, but there were a couple of positives

The S&P/ASX200 (XJO) finished 47.0 points lower at 7,578.9, 0.49% from its session low and 0.62% from its high. In the broader-based S&P/ASX 300 (XKO), advancers lagged decliners by 101 to 167.

The Energy (XEJ) +0.45% was the best performing sector today, well it was the only sector up today! A solid day from majors Woodside Energy Group Ltd (ASX: WDS) and Santos Ltd (ASX: STO) helped, as media reports suggested due diligence on their proposed merger is done, and an announcement could occur as soon as the release of either of their respective first half results.

On this point, if you're wondering when these companies, or any other company is reporting, make sure you book mark our ASX reporting season calendar to rule them all.

Also part of the Energy sector, uranium stocks, were on a tear again as investors continue to respond to ongoing production issues at Kazatomprom.

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Energy stocks enjoyed a gain as WDS and STO as well as uranium stocks rose

Doing it tough was the Information Technology (XIJ) (-1.8%), as investors sold down its two sector heavyweights Wisetech Global Ltd (ASX: WTC) (-3.9%) and Xero (ASX: XRO) (-2.8%).

Nothing specific there, apart from the higher yields we discussed in yesterday's Evening wrap, but WTC does have first half results due in a couple of weeks (again – check the Calendar!). It disappointed the market when it announced its full year results back in August, so possibly investors are trimming some risk here just in case.

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Tech stocks were hardest hit in today's disappointing market performance

ChartWatch

SSEC Composite Index (China)

We've seen rallies like this last all of 5 minutes...

Chinese stocks were up sharply today in response to the announcement of tightened trading restrictions on Chinese fund managers, particularly those relating to short selling. Other funds have been restricted from placing certain types of sell orders, and margin requirements have been loosened to reduce the likelihood of forced selling due to margin calls.

China’s sovereign wealth also announced it was buying stocks “to maintain the stability of the capital market”. Other media reports from Chinese state owned press agencies suggested no less than President Xi Jinping is now considering the matter of acute weakness in Chinese stocks – which hit fresh 5-year lows yesterday. He could be receiving a report from market regulators on the issues facing Chinese stock markets as soon as today.

The chart pretty much speaks for itself. Apart from today's big white demand-side candle, it is a picture of excess supply. This means those with cash are looking elsewhere, and those with stocks are throwing those stocks at what little cash is prepared to take a nibble, but only at a substantial discount to compensate for the heightened risk of ownership.

This weeks moves are just one of many sets of measures which have been announced over the last 6 months, and each of those failed to arrest the steady decline in Chinese stocks. That doesn't mean this one can't be "the one" which turns the tide, and if the tide does turn, one would think it would be good for Aussie stocks indirectly as well.

You'll know if this is the one if we see further demand-side candles, i.e., those with large white bodies and or long downward pointing shadows, higher troughs and higher peaks, and eventually, a turning up of the short and long term moving averages. Only time, and the technicals will tell from here.

Nick Scali Ltd (ASX: NCK) (+16.6%)

A nice pop today in NCK shares

Today's pop couldn't have come at a better time for Nick Scali, which was starting to reverse its short term uptrend. Today's gap up and large white candle are indicative of a sudden and significant change in the demand-supply environment, clearly towards excess demand.

Today's close could have been better, that is, on the high of the session, which would have indicated a total supply vacuum, but it's still impressive given the true range of the session (range plus the gap up). With the short term trend re-established, the price closing above the recent major point of supply set at $13.18 on 15 January, and the long term uptrend confirmed, it's clear the demand-side is very much in control the Nick Scali price.

Myer Holdings Ltd (ASX: MYR) (+14.3%)

The MYR chart is increasingly looking like a "turnaround setup"

This is a characteristic "turnaround setup" which is signified by a return to higher peaks and higher troughs, a new short term uptrend, a close above the long term downtrend ribbon, and that ribbon beginning to transition to up. A predominance of demand-side candles is also crucial.

The MYR chart is indicative the demand-supply environment for MYR shares has returned to one of excess demand. I do see some potential supply pressure at historical peaks and troughs in the $0.81-$0.885 region, but the strength of today's move gives me confidence it likely won't be too much trouble for the prevailing short term uptrend.

Economy

• AU RBA statement, cash rate, press conference:

  • Actual 4.35% vs consensus forecast 4.35% (i.e., no change)

  • Despite progress, "inflation remains high...it will be some time yet before inflation is sustainably in the target range"

  • Services price inflation "has remained persistent"

  • Inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026

  • The Board remains resolute in its determination, “a further increase in interest rates cannot be ruled out.”

  • Governor Bullock: "We cannot back track on inflation...we have to be sure", out of

  • Out of 10, she's at a "5" inflation is moving back to the target range!

Later this week...

Thursday

• 12:30 China CPI y/y to January: consensus forecast -0.5% p.a. vs -0.3% p.a. in November; China PPI y/y to January: consensus forecast-2.6% p.a. vs November -2.7% p.a.

Friday

• 09:30 AU RBA Governor Bullock speaks

Latest News

Interesting Movers

Trading higher

• +16.6% Nick Scali (NCK) - NCK 1H FY24 Results Announcement

• +14.3% Myer Holdings (MYR) - Trading Update

• +8.4% Syrah Resources (SYR) - Change of Director's Interest Notice

• +5.4% Nuix (NXL) - No news, bouncing off long term trend ribbon

• +4.9% Bravura Solutions (BVS) - No news, rise is consistent with prevailing short uptrend, long term trend is transitioning from down to up

• +4.7% Zip Co (ZIP) - No news, rise is consistent with prevailing short uptrend, long term trend is transitioning from down to up

• +4.6% Omni Bridgeway (OBL) - No news 🤔

• +4.1% Seven West Media (SWM) - No news 🤔

• +4.1% Catapult Group International (CAT) - No news 🤔

• +4.0% Silex Systems (SLX) - No news, rise is consistent with prevailing short and long term uptrends

• +3.8% Kogan.Com (KGN) - No news, rise is consistent with prevailing short and long term uptrends

Trading lower

• -10.6% West African Resources (WAF) - 2024 Production Guidance

• -6.9% Cochlear (COH) - Downgraded to SELL from neutral at UBS, price targe cut to $240.00 from $260.00

• -6.5% Alpha HPA (A4N) - No news, fall is consistent with prevailing short term downtrend, long term trend is turning down, close below 0.795 support level

• -5.2% Arcadium Lithium (LTM) - No news, fall is consistent with prevailing short and long term term downtrends

• -4.7% Ainsworth Game Technology (AGI) - No news 🤔

• -4.4% Champion Iron (CIA) - Update on Collective Negotiation Agreements

• -4.4% Mader Group (MAD) - No news 🤔

• -4.4% Red 5 (RED) - Red 5 and Silver Lake Resources to Merge

• -4.2% Beacon Lighting Group (BLX) - No news 🤔

• -4.0% Capricorn Metals (CMM) - No news 🤔

• -3.9% Wisetech Global (WTC) - No news 🤔

Broker Notes

• 29METALS (29M) retained at overweight at Jarden; Price Target: $0.39 from $0.82

• Altium (ALU) retained at buy at Citi; Price Target: $56.50

• ASX (ASX) retained at neutral at Jarden; Price Target: $61.05

• Aurizon Holdings (AZJ) retained at neutral at UBS; Price Target: $3.65

• Bendigo and Adelaide Bank (BEN) retained at neutral at Goldman Sachs; Price Target: $9.57

• Brambles (BXB) retained at buy at UBS; Price Target: $16.55

• City Chic Collective (CCX) retained at neutral at Macquarie; Price Target: $0.54 from $0.38

• Cochlear (COH) downgraded to sell from neutral at UBS; Price Target: $240.00 from $260.00

• Centaurus Metals (CTM) retained at outperform at Macquarie; Price Target: $0.70

• Dexus Convenience Retail REIT (DXC)

  • Retained at accumulate at Ord Minnett; Price Target: $2.80 from $2.79

  • Retained at buy at Bell Potter; Price Target: $3.00 from $2.90

• Fletcher Building (FBU)

  • Downgraded to outperform from buy at CLSA; Price Target: $4.50 from $4.90

  • Retained at buy at Goldman Sachs; Price Target: $4.65 from $4.90

• Genesis Minerals (GMD) initiated at buy at Shaw and Partners; Price Target: $2.20

• Inghams Group (ING) upgraded to buy from hold at Bell Potter; Price Target: $4.90 from $3.95

• Johns Lyng Group (JLG) retained at at Citi; Price Target: $8.35 from $7.00

• LGI (LGI) upgraded to buy from hold at Bell Potter; Price Target: $2.55 from $3.32

• Lynas Rare Earths (LYC) initiated buy at Jefferies; Price Target: $7.60

• Metcash (MTS)

  • Upgraded to buy from hold at Jefferies; Price Target: $4.00 from $3.60

  • Retained at neutral at Goldman Sachs; Price Target: $3.60

  • Retained at overweight at Jarden; Price Target: $4.30 from $4.20

  • Retained at buy at UBS; Price Target: $4.00 from $4.10

  • Retained at accumulate at Ord Minnett; Price Target: $4.00

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

• National Storage REIT (NSR) retained at buy at Citi; Price Target: $2.60

• Nufarm (NUF) retained at buy at Citi; Price Target: $5.60

• Novonix (NVX) initiated buy at Jefferies; Price Target: $1.06

• News Corporation (NWS) retained at neutral at Macquarie; Price Target: $37.00 from $33.00

• Nexted Group (NXD) retained at buy at Bell Potter; Price Target: $1.05

• Qantas Airways (QAN) retained at buy at UBS; Price Target: $7.70

• Qube Holdings (QUB) retained at neutral at UBS; Price Target: $3.33

• South32 (S32) retained at neutral at Macquarie; Price Target: $3.10

• Select Harvests (SHV) initiated at buy at Ord Minnett; Price Target: $5.09

• Silver Lake Resources (SLR) downgraded to neutral from outperform at Macquarie; Price Target: $1.20 from $1.50

Scans