Evening Wrap: ASX 200 slides as mining wipeout continues, GYG, LOV and JBH soar on Aussie employment and retail spending bonanza!

It was another day of haves and have nots on the Australian share market. Haves: Consumer discretionary (big time!), and defensives like staples and healthcare. Have nots: Any stock involved in digging or pumping something out of the ground!

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 59.7 points lower at 8,748.7, 0.68% from its session high and smack–bang on its session low. Despite the rather terrible performance at benchmark level, in the broader-based S&P/ASX 300 (XKO) advancers lagged decliners by only a modest 142 to 148.

Normally I'd waffle on here about how on bad days 'defensive' sectors tend to do better while 'growth-oriented' and 'cyclical' stocks tend to falter. You know... the drill for about the last 3 weeks...

FYI, defensive sectors are those whose earnings are less impacted by global economic downturns or just plain investor nerves, as they deal in stuff we all need all the time. Groceries, utilities, health care, booze... you know.

Growth oriented and cyclical sectors are those whose earnings largely depend on the strength of the global economy, and failing that, investor optimism that it's at least getting better. So, mining, energy, building materials... That sort of stuff.

Anyways, no waffle today: let's just look at the charts. Because they say it all! (They usually do! 💪)

CHARTS OF DEFENSIVE STUFF:

Health Care (XHJ) (+2.6%)

S&P/ASX 200 Health Care Sector Index chart

Consumer Staples (XSJ) (+1.4%)

S&P/ASX 200 Consumer Staples Sector Index chart

Bond proxies sectors Real Estate (XPJ) (+1.1%) and Utilities (XUJ) (+0.7%) were also stronger today, as local 10-year bond yields traded to their lowest since the start of the Middle East conflict and ensuing oil price spike.

S&P/ASX 200 Real Estate Sector Index chart

CHARTS OF CYCLICAL STUFF:

Materials (XMJ) (-2.3%)

S&P/ASX 200 Materials Sector Index chart

Energy (XEJ) (-2.5%)

S&P/ASX 200 Energy Sector Index chart

The only odd one out is Consumer Discretionary (XDJ) (+2.1%). If you've been following my commentary in ChartWatch webinars , you'll know that I've been looking for aggressive setups in the sector for several weeks, and indeed, I've flagged many in recent editions of ChartWatch ASX Scans (e.g., ALL, FLT, HVN, NCK, JBH, KGN, SUL and WES (continuation)).

Is the XDJ defensive or is it cyclical? In some ways it shares traits of both ends of the spectrum: greater exposure to Australian domestic economy rather than global economic trends, but undoubtedly, it prefers a stronger economic backdrop than a weaker one.

S&P/ASX 200 Consumer Discretionary Sector Index chart

So, why is it rallying with the defensives? We could mention things like: strong local economic data released today (see Economy section below for analysis), growing confidence that the RBA's hiking cycle is done, robust employment supporting domestic consumption, easing cost of living pressures via lower crude price/fuel prices... But those would be narratives = words put in the right order to provide a plausible explanation for why something might be happening.

I hate narratives. Heard enough of them to last me a lifetime! You know that I prefer D vs S = P to any narrative. At the end of the day: IT JUST IS. The XDJ is just going up... Deal with it!

The takeaway is this: We've just come out of 12 months of the most vicious period of sector rotations in at least 26 years (read that article and I'll prove it to you!). If the last few weeks is anything to go by, it's going to keep happening – just with a different set of winners and losers.

The Old Tin Pot at its finest! 🤦

Analysis

Keep in mind that my trend ribbons don't exist in space and time. They have no physical attributes, they can't do anything.

And yet, they did a pretty good job of doing their job last night on the Comp:

• When the price is above the trend ribbon (short- or long-term), MOTN it acts as a zone of dynamic excess demand – meaning the price tends to bounce up from the trend ribbon. ⬆️

• When the price is below the trend ribbon (short- or long-term), MOTN it acts as a zone of dynamic excess supply – meaning the price tends to bounce down from the trend ribbon. ⬇️

Why this tends to occur MOTN beats me, but to be fair, I don't know how the transmission in my car works, either. 🤷

It just does. Thankfully! 😉

But the biggest problem for the Comp last night was not some imaginary trend ribbon, it was the upward pointing shadow and low session close. We know that:

• Upward pointing shadows are the manifestation of excess supply in the system at higher prices – in simple terms: SELL THE RALLY (STR)

• A low session close suggests that excess supply was sustained into the end of the trading session – it implies there was likely so much supply that not all of the supply side's wishes could have been filled during the session, and therefore may extend into the next.

Add to the above, another monster volume day – as in, MASSIVE engagement by both the demand and supply sides – and we can infer that something very substantial is going on.

We aren't witnessing a scenario where supply is hitting a demand vacuum... "Oh, that's why prices are going down... Buyers are on strike and the bit of motivated supply around is having an outsized impact on the price..."

Nope. There's a truckload of demand around! Why? Well there's a truckload of cash around. It's been trying to get into the Comp for ages, but for much of the +6,000 point rally since April, it's been forced to bid up price to entice supply out.

There's no need to entice now. Supply is everywhere. So the demand side is getting its fill, and a little more.

Demand is getting set here, i.e., cash is being converted to stock – and it doesn't seem to care too much that supply is up to the task. Either that's a good sign – because there's so much demand around it just doesn't care that there's plenty of supply around to meet it.

Or, in my experience, it means we're at a major market top. ⚠️🚨

Massive amounts of demand (cash) is entering and immediately being put into losing positions. In my experience, this creates latent demand at higher prices (points of supply). This can be an overhang on higher prices for weeks or months.

And if demand is forced to withdraw due to deteriorating fundamentals, the wall of prevailing supply will no longer have a ready pool of buyers to accommodate them. They will be forced to accept lower, and lower prices to entice demand out.

There's two assumptions here, though:

1. There's a finite amount of demand – the rate at which the available pool of cash is being converted to stock is occurring rapidly now... If the pool of cash is finite, the remaining pool of demand is shrinking and the pool of loss making supply is increasing (remember, stock is latent supply!) .

2. The assumption that loss making supply will be motivated to transform itself back into cash assumes deteriorating fundamentals. That bit is always up for debate. Some would say we're already there (i.e., the existing supply!), while others might never arrive at that view (i.e., the current demand side resilience may prevail!).

But this is all moot. And I've wasted too much of my time typing this, and if you're a sucker for punishment – you've wasted too much time reading it! 🥱

The market is going to do what the market is going to do... And there's absolutely nothing we can do about it. It's not worth bending our tiny little brains as to what it's going to do next: NEXT = FUTILE! 🚫🔮

Our responsibility is to form an opinion of what's likely to happen MOTN from our Analysis. For me, I look at the above chart of the Comp and simply say:

• Nope, definitely not total demand side control = P⬆️ MOTN

• Uh-uh, definitely not total supply side control = P⬇️ MOTN

• Hmmm, yep, that's about right: D ~= S = P ➡️ MOTN

Okay, if that's the case, then I Accept banging my head against a brick wall trying to predict the unpredictable is FUTILE. I better just pull my head in and run at a BALANCED risk position.

View

And that's the Act part! Sorry for taking so long to get here today... But sometimes ChartWatch is just me clearing my head and figuring out what I need to do next! Which is remain at 1/2RP. ⚖️

Key Levels

26789-27191 is the key zone of supply. 24980 is the key point of demand. The short term uptrend ribbon (presently 25875-26102) could now begin to act as a zone of dynamic excess supply.

Analysis

I will keep this very brief! 🏃💨

1/2RP. 🤦

View

My personal allowable capital allocation limit for my investments in Australian stocks is 50%.

Key levels

8984-9022 is the key zone of supply. Beyond that, it's 9201. Demand is in the 8485-8561 range, but the short- and long-term trend ribbons (presently 8696-8776) will likely also increasingly come into play as a dynamic zone of excess demand.

(Glossary of acronyms! OTP (Old Tin Pot): 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)

***NEW VIDEO DROPPED!!! 📺***

BHP & RIO vs CSL battle royale! Is the ASX Resources run over!? Copper, Iron Ore, Lithium and more

Today

• AUS May Employment Data

  • Change: +40,300 m/m vs +30,300 m/m forecast and -18,600 m/m in April

  • Reader: Stronger than expected, but part-time employment (+35,200) did all the heavy lifting as full-time employment rose by a modest 5,200.

  • Unemployment rate: 4.4% as forecast and vs 4.5% in April (Down a notch! Might have helped that XDJ along today! 😉)

• AUS May Household Spending

  • Result: +1.3% m/m vs +0.6% m/m forecast and -1.1% m/m in April

  • Reader: A snap back was expected after April's Middle East conflict/fuel price spike inspired fall – but that was quite a snap back! Aussies are spending up big, and it was discretionary spend that shot the lights out: Clothing and footwear +2.7%, Miscellaneous goods and services +2.2%, Hotels, cafes and restaurants (+1.9%). No cost of living crisis here! 🤑

Later this week

Thursday

• 20:30 USA May Personal Consumption Expenditures (PCE) Data

  • Core PCE Index: +0.3% m/m forecast vs +0.2% m/m in April

  • Personal Income: +0.4% m/m forecast vs +0.0% m/m in April

  • Personal Spending: +0.6% m/m forecast vs +0.5% m/m in April

Friday

• 07:30 JPN May Core CPI (+1.6% p.a. forecast vs +1.3% p.a. in May)

• 20:30 USA May Wholesale Inventories (+0.3% m/m forecast vs +0.6% m/m in April)