Evening Wrap: ASX 200 suffers worst drop since darkest days of pandemic, nothing spared on Japan woes, carry trade unwind

The S&P/ASX 200 closed 293.6 points lower, down 3.7%.

Carnage? Yes.

Major buying opportunity?

Let's dive in!

Markets

ASX 200 Session Chart

The S&P/ASX 200 (XJO) finished 293.6 points lower at 7,649.6, 4% from its session high and just 0.18% from its low. In the broader-based S&P/ASX 300 (XKO), advancers lagged decliners by a dismal 3 to 283. That 300 market breadth – I can't recall a time I've seen it that bad...well not since the GFC maybe...

Sector losses started at the defensive end – Health Care (XHJ) (-1.8%) and steadily blew out to the risk-on end – Real Estate Investment Trusts (XPJ) (-4.6%), Financials (XFJ) (-5.0%), and Information Technology (XIJ) (-6.6%).

I expect you want to see tables of biggest losers as much as I want to produce them. If you do...then Check the Interesting Movers section for the worst.

Here, let’s focus on the best stocks on the ASX today. There were just a few…

The best stocks on the ASX today

As for why everything else went pear shaped today, it started with US stuff, but today spread (the word "contagion" come to mind) to Japan stuff. There's more on all the stuff you need to know plus charts in ChartWatch below.

ChartWatch

Nikkei 225 (Japan) & US Dollar vs Japanese Yen (USDJPY)

Yes, it probably started a coupe of weeks ago with the peaking of those mega-cap tech stocks…and then the plunge in short term US yields – i.e., the “inflection point” I’ve discussed here before, but over the weekend and emerging into market action today – it was the dissolution of the carry trade.

Today’s falls on the ASX were a result of stuff going on in the "everywhere else but Australia" part of the global financial pond, but we are not immune to the flows of capital that skim past our shores.

The threads that need to be pulled together to explain fully what occurred today are beyond the scope of this Evening Wrap, but I will endeavour to do so in an article tomorrow.

For now, just note the root of the cause was Japan, and more specifically what occurred in its bond, currency and stock markets.

Here’s a couple of charts to illustrate just how big the moves in Japan were today.

US Dollar vs Japanese Yen (USDJPY) chart

Nikkei 225 chart

These moves are standard deviations from the mean. Stuff isn’t supposed to move like that under “normal” circumstances. But it can. It did, and we must always be prepared for it!

It’s pretty simple even if you don’t understand the mechanism that translates the above two charts into why your super fund or punting portfolio got shellacked today – if gigantic black candles caused the mess – then it’s gonna take some pretty decent white ones to get us out of it!

S&P/ASX 200 (XJO)

An interesting chart...😭

You know what I always say about big black candles that close on their lows. They’re not a good look as far as demand-side control.

Obviously the bigger, the blacker, and the lower they close – the greater is the prevalence of the opposite: Supply-side control.

Moves like today cannot be predicted unless you’re a conspiracy theorist who’s probably been wrong for about the last 30%-50% of the bull market and finally got it right.

Congratulations are in order for each and every one of them – and make no mistake they are going to revel in the "I told you so" of this moment (ignoring how wrong they were all the way up!).

That’s not me. As a trend follower, I have to trust the trend, right up until the 8149 high three trading sessions ago – which let’s face it – sans the last 2 candles, looked pretty darn good!

But, these moves can and will happen. A trend follower now switches to damage control, reducing risk, and hibernating until the next clear trend (up or down!).

Today’s candle sliced through a bunch of historical demand points like they weren’t there. It’s also lodged itself deep inside what is generally classed as my last line of uptrend defence – the long term uptrend ribbon.

As bad as it looks, tomorrow is another day. Today’s moves (and I suspect at least the open in Europe and the USA) are caused just as much by a demand-side vacuum than a wall of motivated supply.

Yes, there was a great deal of the latter – but these price moves are a result of demand not wanting to get in the way. That demand will return when there’s a little more clarity and some calmer heads. The selling will retreat when the forced element (i.e., over leveraged and margin called) dissipates.

This will cause the price action I propose will be critical.

Tonight’s candles in the US are going to be the first part of the soon to unfold “critical” puzzle:

1. A low open/low close signals there’s more excess supply to come

2. An emphatic low open/high close – particularly on a massive volume spike to indicate supply-side capitulation – will stop the rot for now.

If the reversal in Scenario 2 is big enough, it may even set the low point of this correction and reset markets for the next leg of the bull market.

But I am looking way too far into the future – so let’s just get the next candle and see!

Economy

Today

• There weren't any major data releases in our time zone today

Later this week

Tuesday

• 00:00 ISM Services PMI (51.4 forecast vs 48.8 previous)

• 11:30 AUS ANZ Job Advertisements July (-2.2% in June)

• 14:30 AUS RBA Monetary Policy Cash Rate decision and Statement (forecast no change at 4.35%)

• 15:30 AUS RBA Press Conference

Wednesday

• TBA CHN Trade Balance July (709 billion forecast vs 704 billion previous in June)

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

• +15.4% Galan Lithium (GLN) - Australian Financial Review article (paywall) speculating the company had received a takeover bid from Texas-headquartered EnergyX. Company went into trading halt just before the close of trading. Also note Investor Presentation - Diggers and Dealers August 2024.

• +7.1% Magnetic Resources (MAU) - Outstanding value demonstrated by Economic Update at LJ and Investor Presentation - Diggers and Dealers, rise is consistent with prevailing short and long term uptrends 🔎📈

• +6.9% Vitura Health (VIT) - No news, obscure, illiquid, makes moves like this possible on days like this!

• +5.6% Predictive Discovery (PDI) - No news I could find - ditto VIT

• +3.3% Northern Minerals (NTU) - Ditto

• +2.9% Resmed Inc (RMD) - Friday's ResMed Announces Results for the Fourth Quarter of FY2024, several broker notes today, generally positive with price target increases (see Broker Notes below)

Trading lower

• -17.2% Bowen Coking Coal (BCB) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -16.1% Aura Energy (AEE) - No news, uranium rout continues - sharp drop in US uranium stocks Friday, plus uranium futures also dipped on COMEX, fall is consistent with prevailing short and long term downtrends 🔎📉

• -14.5% Meteoric Resources (MEI) - Diggers & Dealers Presentation 2024 and Share Purchase Plan - Letter and Offer Booklet, fall is consistent with prevailing short and long term downtrends 🔎📉

• -14.4% Appen (APX) - No news

• -13.9% Botanix Pharmaceuticals (BOT) - No news

• -13.8% Peninsula Energy (PEN) - Company Presentation - August 2024, uranium rout continues - sharp drop in US uranium stocks Friday, plus uranium futures also dipped on COMEX, fall is consistent with prevailing short and long term downtrends 🔎📉

• -13.8% WA1 Resources (WA1) - Diggers & Dealers Mining Forum Presentation, fall is consistent with prevailing short term downtrend 🔎📉

• -13.8% Latin Resources (LRS) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -13.2% Immutep (IMM) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -12.9% Clarity Pharmaceuticals (CU6) - No news

• -12.7% Winsome Resources (WR1) - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -12.5% Alligator Energy (AGE) - No news, uranium rout continues - sharp drop in US uranium stocks Friday, plus uranium futures also dipped on COMEX, fall is consistent with prevailing short and long term downtrends 🔎📉

• -12.4% Electro Optic Systems (EOS) - No news

• -12.2% Wildcat Resources (WC8) - LEIA CONTINUES TO DELIVER HIGH-GRADE LITHIUM, fall is consistent with prevailing short and long term downtrends 🔎📉

• -12.0% Playside Studios (PLY) - No news

• -11.2% Bannerman Energy (BMN) - No news, uranium rout continues - sharp drop in US uranium stocks Friday, plus uranium futures also dipped on COMEX, fall is consistent with prevailing short and long term downtrends 🔎📉

• -10.9% Zip Co. (ZIP) - No news

Broker Notes

Aeris Resources (AIS)

• Retained at hold at Ord Minnett; Price Target: $0.22 from $0.23

Alkane Resources (ALK)

• Retained at hold at Ord Minnett; Price Target: $0.50 from $0.55

ANZ Group (ANZ)

• Retained at sell at Citi; Price Target: $24.50

• Retained at underperform at Macquarie; Price Target: $26.50

Avita Medical (AVH)

• Retained at hold at Bell Potter; Price Target: $3.20 from $3.50

Bendigo and Adelaide Bank (BEN)

• Retained at sell at Citi; Price Target: $9.50

Commonwealth Bank of Australia (CBA)

• Retained at sell at Citi; Price Target: $85.00

Cleanaway Waste Management (CWY)

• Upgraded at buy at UBS; Price Target: $3.30 from $2.80

Delta Lithium (DLI)

• Retained at buy at Bell Potter; Price Target: $0.75

EBR Systems (EBR)

• Retained at buy at Bell Potter; Price Target: $1.43

Judo Capital (JDO)

• Retained at sell at Citi; Price Target: $1.26

Johns Lyng Group (JLG)

• Retained at buy at Citi; Price Target: $7.85

• Retained at overweight at Morgan Stanley; Price Target: $7.20

Lifestyle Communities (LIC)

• Downgraded to overweight from buy at Jarden; Price Target: $11.70 from $15.00

National Australia Bank (NAB)

• Retained at sell at Citi; Price Target: $26.50

Nufarm (NUF)

• Retained at neutral at Citi; Price Target: $4.80

Nexgen Energy (NXG)

• Retained at buy at Shaw and Partners; Price Target: $16.20 from $17.50

Pointsbet (PBH)

• Retained at buy at Ord Minnett; Price Target: $0.90 from $0.80

Pinnacle Investment Management Group (PNI)

• Retained at add at Morgans; Price Target: $18.00 from $16.00

• Retained at buy at Ord Minnett; Price Target: $20.00 from $16.00

• Retained at neutral at UBS; Price Target: $17.00 from $14.50

Red 5 (RED)

• Retained at outperform at Macquarie; Price Target: $0.55

Resimac Group (RMC)

• Retained at neutral at Macquarie; Price Target: $1.05

Resmed Inc (RMD)

• Retained at neutral at Citi; Price Target: $34.00 from $30.00

• Retained at outperform at Macquarie; Price Target: $36.25 from $35.40

• Retained at add at Morgans; Price Target: $35.93 from $34.11

• Retained at accumulate at Ord Minnett; Price Target: $35.40 from $33.00

St Barbara (SBM)

• Retained at hold at Ord Minnett; Price Target: $0.23 from $0.24

Suncorp Group (SUN)

• Downgraded to hold from buy at Jefferies; Price Target: $18.00 from $18.93

Temple & Webster Group (TPW)

• Retained at outperform at Macquarie; Price Target: $12.30

Westpac Banking Corporation (WBC)

• Retained at sell at Citi; Price Target: $24.75

Westgold Resources (WGX)

• Initiated at buy at Argonaut Securities; Price Target: $4.30

• Retained at outperform at Macquarie; Price Target: $3.00 from $2.90

Scans