Evening Wrap: ASX 200 storms to cusp of key technical level it's crashed from four times before

The S&P/ASX 200 closed 62.7 points higher, up 0.84%.

Please note that Market Index Morning and Evening Wraps will take a break from Wednesday 20 December and return on 8 January 2024. Kerry & Carl wish you a safe and happy Christmas and New Year!

It doesn't get more positive than today – A solid, broad-based move up. Plenty of stocks in the winners column, and even some big names like Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) making new record highs. It just seems too good to be true, doesn't it? 🤔

Well, I have some good news and some bad news. I suggest you're going to want to watch very closely from here...

Let's dive in.

Markets

ASX 200 Session Chart

I told you there was nothing to worry about!

The S&P/ASX200 (XJO) finished 62.7 points higher at 7,489.1, 0.9% from its session low and just 0.1% from its high. In the broader-based S&P/ASX 300 (XKO), advancers beat decliners by 218 to 67 – one of the best moves in terms of market breadth in recent memory.

That feeling you get when you get to the top of the mountain and see a higher mountain!

White candle, high close, broad move. Check, check, check. Even better, the close has eclipsed a historical major point of demand (“MPOD”) in 7,473. The next stop from a technical perspective is what I describe as the "big one". The summit. Well quadruple summit to be precise.

Will it be fifth time lucky for the ASX 200?

If you've got that uncanny sense of deja vu, it's because when you zoom out to the weekly chart of the S&P/ASX 200 we've been here four times before, most recently in February, a couple times back in 2022, and at the all-time high of 7,633 set on 13 August 2021.

Here's the problem. We looked as good as we do now each time before. At least two of those times you could argue the rally to get to the highs was just as extended. But that's the thing about trend following – you're always wrong at the top and the bottom!

If it makes you feel any better, all I can see right now is excess demand. There's nothing in the technicals which suggests this rally is going to unravel any time soon.

Best and worst today...

Best? Interest rate sensitives like Utilities (XUJ) +1.7%, Real Estate Investment Trusts (XPJ) +1.6%, Information Technology (XIJ) +1.2%, and Consumer Discretionary (XDJ) +1.1%. The reason here is likely a combination of lower yields in Japan (see Economy) and most economists viewing the RBA's December meeting minutes as signaling they're done hiking Aussie rates.

Worst? Every major sector was up today so there's no obvious theme here. I'll highlight a few stock specific moves in the Movers section below.

Economy

No surprises today at the Bank of Japan (“BOJ”) meeting. The BOJ kept its main policy rate at -0.10% (compare to US 5.25% and Aussie 4.35% official rates!) and refused to pander to market speculation it was on the verge of discarding it’s yield curve control regime. It will continue to target the yield of Japan’s 10 Year Government bond at a 1% threshold.

If you’ve made it to this paragraph (instead of seeing “Bank of Japan” and skipping to the Broker Rec’s!) then you’ll get the benefit of me telling you why this is such an important detail for your portfolio! The BOJ has been holding long term Japanese rates at an artificially low level for many years. This forces the huge Japanese pension funds to chase higher yields overseas, i.e., including in Aussie stocks.

Long term bond yields in Japan have been kept low by the BOJ, but they’re beginning to creep higher

So, whilst yields in Japan remain very low, we get the benefit. If, however, long term Japanese bond yields are allowed to rise in line with a recent recovery in Japanese inflation (they actually want inflation), then it could reverse the flow of capital back towards Japanese assets. This could undermine demand for local stocks. In a sentence: Black candle today on chart above equals good for Aussie stocks.

What to watch out for...

A couple more snippets on the US housing market (I explained why the US housing market is so important yesterday). Building Permits and Housing Starts data are due at 12:30AM AEDT. Economists are expecting permits to moderate to 1.47 million in November compared to 1.49 million in October, and starts to dip to 1.36 million from 1.37 million.

Latest News

Interesting Movers

Trading higher

• +13.8% G8 Education (GEM) - Trading Update

• +11.8% Liontown Resources (LTR) - No news, but got a bid on speculation it could be a takeover target again post Azure takeover moves

• +7.6% Neuren Pharmaceuticals (NEU) - No news since 18-Dec still pumping from P2 trial shows significant improvements in Phelan-McDermid

• +5.9% Ridley Corporation (RIC) - No news since 18-Dec still pumping from Agreement to Acquire Oceania Meat Processors

• +5.2% MMA Offshore (MRM) - No news, well established short and long term uptrends

• +4.7% Infomedia (IFM) - No news

• +4.6% Audinate Group (AD8) - No news, stronger tech sector, well established short and long term uptrends

• +4.0% Elders (ELD) - No news, long term trend turning back up

• +3.9% Karoon Energy (KAR) - No news, technical bounce

• +3.8% GWA Group (GWA) - No news, long term trend turning back up

• +3.7% Alpha HPA (A4N) - No news, long term trend turning back up

Trading lower

• -5.9% Weebit Nano (WBT) - Pullback from recent correction, usual WBT shenanigans!

• -5.0% Tabcorp Holdings (TAH) - New Exclusive Victorian Wagering and Betting Licence

• -4.7% KMD Brands (KMD) - No news, well established short and long term downtrends

• -3.1% Calix (CXL) - Calix appoints new NED's in board renewal

• -2.6% Skycity Entertainment Group (SKC) - No news, well established short and long term downtrends

• -2.3% Pilbara Minerals (PLS) - No news, $4 is key technical resistance point, lithium carbonate rally in China losing steam amidst weaker spodumene spot price

Broker Notes

• Atlantic Lithium (A11) retained at outperform Macquarie; Price Target: $0.65 from $0.66

• Adbri (ABC)

  • Retained at equalweight Morgan Stanley; Price Target: $3.20

  • Retained at neutral Citi; Price Target: $2.50

• Boss Energy (BOE) retained at buy Bell Potter; Price Target: $5.69 from $5.53

• Carnarvon Energy (CVN)

  • Upgraded to outperform from neutral at Macquarie; Price Target: $0.25

  • Upgraded to buy from overweight at Jarden; Price Target: $0.25

• Domino's Pizza Enterprises (DMP) retained at buy Citi; Price Target: $61.10

• Iluka Resources (ILU) retained at outperform Macquarie; Price Target: $8.90 from $9.30

• IPH (IPH) upgraded to buy from outperform at CLSA; Price Target: $9.05 from $9.20

• Lendlease Group (LLC)

  • Retained at equalweight Morgan Stanley; Price Target: $7.95

  • Retained at buy Citi; Price Target: $9.50

• Link Administration Holdings (LNK) downgraded to underperform from buy at CLSA; Price Target: $2.26 from $2.00

• Neuren Pharmaceuticals (NEU) upgraded to buy from hold at Bell Potter; Price Target: $27.00 from $17.50

• Patriot Battery Metals Inc. (PMT) retained at outperform Macquarie; Price Target: $2.10

• Ridley Corporation (RIC) retained at buy UBS; Price Target: $2.80 from $2.60

• Stockland (SGP)

  • Retained at overweight Morgan Stanley; Price Target: $4.45

  • Retained at buy Citi; Price Target: $5.10

• Santos (STO) retained at buy Citi; Price Target: $8.25

• Tabcorp Holdings (TAH)

  • Retained at overweight Morgan Stanley; Price Target: $1.20

  • Retained at neutral UBS; Price Target: $1.02

• Woodside Energy Group (WDS) retained at sell Citi; Price Target: $26.50

Scans