Evening Wrap: ASX 200 sinks as bond market meltdown sparks flight from mining and tech stocks

It's a simple relationship: Bond yields up, share prices down. But, it wasn't like bond yields went up just a little overnight / today — they're edging toward levels that could create some serious problems for the global economy. The Australian share market isn't immune from from such moves in international capital markets, and today's fall capped a tough week were investors decided that local shares weren't a good risk-reward bet.

Be sure to click/scroll through for the usual reporting of the major sector and stock-specific moves, the broker responses to them, as well as all the key economic data in tonight's Evening Wrap. Also, I have detailed technical analysis on the Nasdaq Composite and the S&P/ASX 200 in today's ChartWatch.

Let’s dive in!

The S&P/ASX 200 (XJO) finished 78.2 points lower at 8,741.2, 0.9% from its session high and 0.5% from its low. Once again, the late-session scrape off the lows didn’t exactly reflect the horrendous market breadth, as advancers lagged decliners by a worrying 61 to 216 in the broader-based S&P/ASX 300 (XKO).

For the week, the XJO finished down 265 points or 2.9% lower, 3.4% from its intraweek high and just 0.5% from its intraweek low.

Wrap time. It's Friday and it's been a long and testing week (even sitting at 50% cash). So, do you want the long version or the short version?

Let me do both just in case.

Here's the short version. One chart.

If I've done my job over 3 years of writing this Evening Wrap (and about a year of ChartWatch webinars), this chart should be sufficient for long-suffering readers to understand everything they need to know about the current state of the Australian share market:

US 30-Year T-Bond Yield chart

Because, what other explanation do you require for why the remaining part of your ASX portfolio got belted today? (i.e., assuming you too have built up some cash reserves recently! 😉)

Anyways, here's the long version (some of you may wish to skip over this bit and go straight to the technical analysis in ChartWatch below...)

The long version also starts at: Bond yields 🚀

Why? US Treasury's buying of long dated T-bonds to raise their prices (higher bond price = lower bond yield) has "underwhelmed the market". This is the excuse mainstream finance journos are using in all the other evening wraps to explain what I've told you here previously: A couple weeks back Bessent challenged the market ("I have better information, I have a big stick"). The market doesn't like to be challenged. The market is going to teach Scott Bessent a lesson.

(Can I also postulate that $5k divvy checks for all Americans didn't help here = Trust in Uncle Sam's ability to pay his bills in the long term = 🌵).

But also! Since then, Oil price 🚀 = Inflation expectations ⬆️ = Short term bond yields / Fed, RBA, ECB, etc. etc. official cash rate hike expectations ⬆️.

So, Bond yields 🚀 + Official rates ⬆️ = Discount rate ⬆️ (i.e., the rate at which risky future cash flows from stocks are discounted back to a present value – therefore determining their share price).

Discount rate ⬆️ = Share Prices ⬇️

But also! Bond yields 🚀 = Global growth expectations ⬇️ = Commodity prices (e.g. copper, iron ore, base metals etc.) ⬇️

So, a double whammy for the resources-heavy ASX today.

Consider there was also a bit of US Dollar ⬆️ = Commodities prices ⬇️... and for gold in particular... all of the above = Gold price ⬇️ because gold doesn't have a yield. So higher risk-free returns increase the opportunity cost of holding gold.

That's all big picture macroeconomic stuff. To top it off... locally, inflation and spending data has spiked the expectation of another RBA cash rate ⬆️ + Housing prices / market 💥 = Consumer sentiment = 😭 + Business confidence = 🚽.

So, we have global level ⬇️ + local level ⬇️ = ASX share prices ⬇️ = Anyone still at FRP = 😭

Have I left anything out? 🤔

(Hey, there's a third version of Friday ASX Market Wrap containing a whole heap of "XYZ went down this much today" and "ABC went down that much today"... blah blah blah... but you can get that everywhere else! 🤦)

Analysis

Another blip down. Far from panic stations. It's all a bit eerily run of the mill on the Comp. But this is a true Golden Le Creuset of a market. We should not be surprised...

When your earnings are expected to grow 20% p.a. for at least a couple years... then a bond yield going from 5.2% to 5.3% won't move the dial a great deal.

Locally, of course, sans mining and energy stocks, the Old Tin Pot's earnings growth is closer to around 5% p.a.

So you can see why we're doing what we're doing and the Comp is only just blipping lower.

For now.

Because if the you know what really hits the fan... it's still a risk market and it will reflect changes in risk appetite.

Consider the Russell 2000 and S&P500 Equal Weight charts:

Note the arrows drawn on the RUT chart are straight out of the webinar from a couple weeks back and are not a prediction... simply a possible scenario based on the change of trend = MOTN the short term trend ribbon is going to impede upwards price action!!! 💪

Clearly there are some problems in these charts... ⚠️

Which begs the question: Which US index is the best benchmark, because if it were either of the other two, then perhaps we might be moving to 1/3RP today instead of maintaining the current 1/2RP?

View

Answer: I'm sticking with the Comp and with 1/2RP. I feel there's plenty of balance there and 50% is astronomically conservative anyway when compared to your average managed fund. Let's just say that "stuff is getting interesting" though! 🤔

Key Levels

26701-863 is the closest key point of supply vs 25910-95 as the closest key point of demand, and then the long term trend ribbon (presently 24258-25146).

Analysis

As noted above, 50% cash or 67% cash is a little moot here. Obviously, today's candle, with its close below the long term uptrend ribbon + above average OTR + above average volume + close near enough to the low of the session = 1/3RP.

Consider that to me:

1/3RP simply means:

• the trends aren't clear, there's too much evidence that the supply side is in control of the price = MOTN P⬇️ (i.e., minimum risk position required!!!)

• such periods are extremely volatile, both up and down = overtrading here (even shorting) carries with it too much risk for trend followers like me.

And remember that within the 1/3RP sits some short-side risk:

• some of my 1/3RP is directed to shorts... this RP doing extremely well and paying for some of the losses on my long-side RP. ⚖️

• it's important to keep the short exposure going given the trends, but also to keep some RP dedicated to the long-side because the market will rally at some point, and even in the worst downtrends – there's always still some great uptrends.

Consider also, 8708-8656 is still holding. It's no surprise that was our low / BTD point today just touched into that zone. It was the area where a substantial amount of demand and BTD operated in the market before (check all of those downward pointing shadows in July!) – and there's every reason it may be still active now.

Sure, I'm operating at a drastically reduced risk level, but I'm also keeping an open mind. But that's easy to do when you're ahead of the curve on risk. If I was FRP, I doubt that I'd be able to operate with the same dispassionate clarity! 🧐

View

1/3RP on Australian shares (i.e., 33% of my capital allocated to ASX shares invested vs 67% cash).

Key Levels

8935-40 is likely to now act as a zone of supply, but the short term trend ribbon (presently 8987-8993) is most likely the biggest barrier the OTP will have to contend with on the way back up. 8708-8656 is the next key zone of demand.

(Glossary of acronyms! Old Tin Pot (OTP): S&P/ASX 200 | MOTN: More Often Than Not | FOMO: Fear Of Missing Out | HOFU: Holding On For Upside | BTD: Buy The Dip | NUTE: No Urgency To Enter | FOHO: Fear Of Holding On | STR: Sell The Rally | RP: Risk Position | FFS: Fund Flow Shenanigans!)

***CHARTWATCH LIVE WEBINARS — NEW VIDEO DROPPED!!! 📺🍿***

Are ASX shares headed for a crash? This expert says it's time to protect your capital (and he shows you how to do it)

TODAY

• There weren't any major economic data releases today...

LATER THIS WEEK

FRIDAY

• 22:30 USA August Core CPI (+0.2% m/m forecast vs +0.2% m/m in July)