Evening Wrap: ASX 200 steadies again, uranium and lithium stocks shine as investors adjust to new post-crash reality

Another solid, but all too small bounce on the Australian stock market today.

It feels like we're just waiting for the knock out blow after Friday and Monday's one-two punch.

Still, there were plenty of highlights (lithium and uranium stocks), and relatively few lowlights. So investigate all of these and much more...

Let's dive in!

Markets

ASX 200 Session Chart

The S&P/ASX 200 (XJO) finished 19.2 points higher at 7,699.8, 0.74% from its session low and 0.5% from its high. In the broader-based S&P/ASX 300 (XKO), advancers beat decliners by an impressive 189 to 80.

It was mainly the interest rate sensitives that got a boost today, although this is at odds with the usual "benchmark yields lower is good for interest rate sensitives" theory. I suspect when you pull the elastic band so far, a snap back isn’t such a terrible thing as it represents a calming of general market nerves.

It’s also likely that the key carry trade factors, i.e., the AUDJPY / USDJPY / and the Nikkei continued to rally today. So, possibly there was a drip, drip back into these typically high-yielding sectors that are traditionally amenable to the carry trade: Real Estate (XRE) (+1.3%), Utilities (XUJ) (+1.0%), Communication Services (XTJ) (+1.0%).

One notable absentee, however, was the Financials (XFJ) (-0.14%) sector. It wasn’t terrible, it just wasn’t in the same basket the other three were today…no carry trade for you! 🚫

Elsewhere, I note that Energy (XEJ) (+0.90%) also experienced a nice rebound – but it’s a drop in the ocean compared to recent declines. Elsewhere elsewhere, it’s usual suspect counterpart Resources (XJR) (+0.01%), was basically flat.

Easily the most interesting thing(s) that happened today were in the uranium and lithium sectors (uranium is part of the XEJ), where we saw some very tidy bounces in each. In uranium’s case, it was on the back of a similar recovery in US U-stocks overnight, as well as a tiny bounce (but better than the prevailing downtrend) in U-futures on COMEX.

For lithium, this one’s a little more obscure. But, most likely, it was due to a well received second quarter report from Arcadium Lithium (ASX: LTM) (+7.5%). LTM announced it intends to cut CAPEX by around US$500 million. This suggests we’re seeing some more supply-side restraint as lithium minerals prices have tumbled.

It’s a plausible reason for today’s gains, but I note that the benchmark Nov-24 lithium carbonate futures on China’s GFEX exchange closed a new record low of CNY80,300/t today.

GFEX Lithium Carbonate, benchmark Nov-24 contract. Source: SMM

ChartWatch

Russell 2000 Index (RUT)

Collateral damage...

The last time we covered the RUT was in ChartWatch in the Evening Wrap on 29 July.

Either it was unfortunate timing, or I just got it plain wrong (a bit of both? 🤔), but the RUT wasn’t as good a US index guide for our ASX 200 as I’d hoped.

Of course, if you’ve been following along in our recent ChartWatch updates on the RUT you’d know that we dispensed with the mega-cap laden NASDAQ Composite (Comp) (and the S&P 500 for the same reason) in favour of the far broader and far more representative of the heart of corporate America RUT.

In perfect hindsight (check yesterday’s ChartWatch for a Comp chart), the Comp would have worked perfectly in terms of giving us plenty of warning of the recent markets turmoil. As in, a few weeks ago it started printing some really nasty supply side candles (RUT very friendly demand-side candles), then it switched falling peaks and falling troughs (RUT serenely still rising peaks and rising troughs), and it cracked through a bunch of key points of demand (RUT kept hovering majestically at all time highs).

Bummer. 😭

The RUT has caught up to the Comp, as really not a lot dodged the US recession rates tilt and carry trade unwind carnage that just hit us like a one-two punch. 🥊🥊

But I take heart in the fact that like the Comp, so far the RUT continues to trade above its long term uptrend ribbon, and we’ve seen a couple of half decent candles in that zone. “Half decent” is about as far as I can go given the indecisiveness implied by each of the last two candle’s upward pointing shadows.

The only way to fix a great big dump – is to manufacture a great big pump. That’s the V-shaped rally theory. A quick and large demand-side response signals that the sell off was a mistake – a mere nervous twitch, just a bump in the bullish road…etc. (I think you get the picture).

The alternative, the dead cat bounce…well that’s bump along the bottom until you probably find another reason to break lower kind of stuff.

So, we need the RUT to hold its long term uptrend ribbon. We need the RUT to start printing some very substantial white-bodied candles and or long downward pointing shadows. We need the RUT to quickly transition back to rising peaks and rising troughs. We need the RUT to get itself back above the previous 2112-2139 supply/demand zone, but preferably also above the new 2176 point of supply.

That’s what we need. What we get…well that’s up to the market.

Economy

Today

• CHN Trade Balance July

  • US$84.7 billion vs US$97.5 billion forecast and US$99.1 billion previous in June

  • Shows continued weakening in Chinese economy

Later this week

Thursday

• 12:40 RBA Governor Michelle Bullock Speaks

Friday

• 11:30 CHN Consumer Price Index (CPI) July (+0.3% p.a. forecast vs +0.2% p.a. in June)

• 11:30 CHN Producer Price Index (PPI) July (-0.9% p.a. forecast vs +0.2% p.a. in June)

Latest News

Interesting Movers

Trading higher

• +17.4% Wildcat Resources (WC8) - WILDCAT AT DIGGERS AND DEALERS and LEIA CONTINUES TO DELIVER HIGH-GRADE LITHIUM, but perhaps also caught some of the rally in the broader sector…🤔

• +7.5% Arcadium Lithium (LTM) - Second quarter results, but really - just part of a mysterious mini-rally in ASX lithium stocks today…I have to assume this is the spark (i.e., the announcement of ~$500 million reduction in CAPEX potentially kicks off some supply-side control...ALTM (NYSE) is up 12.5% after hours...but I note minerals prices down again in China…plumbing new 2-year lows 🤔

• +6.4% Pilbara Minerals (PLS) - Diggers & Dealers Conference 2024 Presentation, but I doubt a D&D preso explains the whole move today…LTM news? 🤔

• +6.4% Appen (APX) - No news, continued positive response from 30 July Q2 FY24 Quarterly Activity Report and Appendix 4C, rise is consistent with prevailing short term uptrend, appears to be trying to break above long term downtrend ribbon 🔎📈

• +6.0% Electro Optic Systems (EOS) - No news, trying to bounce off long term uptrend ribbon 🔎📈

• +5.2% Silex Systems (SLX) - No news, ASX uranium sector enjoyed a bounce today on a corresponding bounce in US U-stocks, and a tiny blip up in U-futures price Tuesday

• +4.8% IGO (IGO) - No news since yesterday's Diggers and Dealers Mining Forum Presentation, ditto ASX lithium!

• +4.5% Tuas (TUA) - No news, trying to bounce off long term uptrend ribbon 🔎📈

• +4.4% Core Lithium (CXO) - Diggers & Dealers Presentation, but probably also a bit of ditto ASX lithium!

• +4.0% Generation Development Group (GDG) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +3.8% Regis Healthcare (REG) - No news, trying to bounce off long term uptrend ribbon 🔎📈

• +3.6% Fisher & Paykel Healthcare Corporation (FPH) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

Trading lower

• -5.4% Meteoric Resources (MEI) - No news since 5 Aug Diggers & Dealers Presentation 2024

• -4.9% Droneshield (DRO) - No news, fall is consistent with prevailing short term downtrend, falling peaks and falling troughs 🔎📉

• -4.0% Spartan Resources (SPR) - Diggers and Dealers - Corporate Presentation

• -3.5% Block (SQ2) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -3.4% Clarity Pharmaceuticals (CU6) - No news 🤔

• -3.1% EML Payments (EML) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -3.1% Westgold Resources (WGX) - No news 🤔

• -2.9% Cettire (CTT) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

Broker Notes

Audinate Group (AD8)

• Retained at overweight at Morgan Stanley; Price Target: $10.00 from $22.00

• Retained at hold at Shaw and Partners; Price Target: $9.30 from $17.90

ANZ Group (ANZ)

• Upgraded to neutral from underweight at JP Morgan; Price Target: $27.00

ASX (ASX)

• Retained at lighten at Ord Minnett; Price Target: $59.50

Beamtree (BMT)

• Retained at buy at Shaw and Partners; Price Target: $0.70

Coronado Global Resources (CRN)

• Retained at buy at Morgans; Price Target: $1.85

• Retained at accumulate at Ord Minnett; Price Target: $1.55 from $1.60

• Retained at buy at UBS; Price Target: $1.95

Fleetpartners Group (FPR)

• Retained at neutral at Macquarie; Price Target: $3.46 from $3.60

Lynas Rare Earths (LYC)

• Retained at outperform at Macquarie; Price Target: $6.80 from $6.60

News Corporation (NWS)

• Retained at outperform at Macquarie; Price Target: $46.00 from $42.00

Patriot Battery Metals (PMT)

• Retained at buy at Citi; Price Target: $0.75

PYC Therapeutics (PYC)

• Retained at buy at Bell Potter; Price Target: $0.17

Rio Tinto (RIO)

• Retained at neutral at Citi; Price Target: $128.00

Reckon (RKN)

• Retained at equal-weight at Morgan Stanley; Price Target: $0.65

Treasury Wine Estates (TWE)

• Retained at outperform at Macquarie; Price Target: $14.00

• Retained at overweight at Morgan Stanley; Price Target: $14.60

• Retained at hold at Ord Minnett; Price Target: $11.50

• Retained at buy at UBS; Price Target: $14.50

Vista Group International (VGL)

• Retained at buy at Shaw and Partners; Price Target: $3.00 from $2.20

Ventia Services Group (VNT)

• Retained at outperform at Macquarie; Price Target: $4.40 from $4.10

Westpac Banking Corporation (WBC)

• Downgraded to underweight from neutral at JP Morgan; Price Target: $25.00

Woodside Energy Group (WDS)

• Retained at overweight at JP Morgan; Price Target: $31.00 from $34.50

• Retained at neutral at E&P; Price Target: $31.00

• Retained at outperform at RBC Capital Markets; Price Target: $35.50

• Retained at neutral at Goldman Sachs; Price Target: $33.00

• Retained at neutral at Jarden; Price Target: $26.60 from $28.50

• Retained at neutral at UBS; Price Target: $31.00

Scans