Morning Wrap: ASX 200 flat, S&P 500 claws back early losses + Is the oil rally over?

Major US benchmarks finished slightly lower but well-above session lows, the US 10-year yield continues to ease from the 4.88% peak on Wednesday, Walmart says obesity drugs are already having an impact on food demand, US trade deficit shrinks to a near three-year low, is the oil selloff overdone and Charts of the Week!

Let's dive in.

S&P 500 SESSION CHART

S&P 500 bounced off worst levels to finish slightly lower (Source: TradingView)

MARKETS

• S&P 500 finished slightly lower, well off session lows of -0.90%

• US 10-year yield down for a second session, 16 bps off brief 4.88% peak on Wednesday

• Relatively uneventful session where the slight pullback in yields failed to provide a meaningful cushion for stocks

• Copper near 11-month lows, down 4.6% in the last four sessions

• WTI crude settled 2.2% lower, extending Thursday’s selloff

• Selloff in longer-dated Treasuries rivals burst of Dot-Com bubble (Reuters)

• Negative feedback loop around rates starting to emerge that could ultimately lead to a hard landing, analysts warn (Bloomberg)

• Fed's bid to avoid recession tested by yields nearing 20-year highs (Bloomberg)

STOCKS

• UAW, automakers signal progress in talks after days of stalemate (Reuters)

• Walmart says obesity drugs already having an impact on food demand (Bloomberg)

• Disney to offer discount on children's tickets at theme parks (Reuters)

• Apple considered switching DuckDuckGo from Google (Bloomberg)

• Amazon to launch first two Kuiper test satellites tomorrow (Bloomberg)

• Rivian Automotive shares tank after the EV maker announced plans to raise $1.5bn in convertible notes (CNBC)

• Clorox reels after cyber attack woes spur analysts to sour on shares (Bloomberg)

CENTRAL BANKS

• BOJ data suggests there was no forex intervention on Tuesday (Reuters)

• Fed Goolsbee says he seeks no signs that the economy is moving off the “golden path” but cautioned external factors like energy prices, strikes or a government shutdown could undo a soft landing (Bloomberg)

ECONOMY

• German exports fall more than expected in August (Reuters)

• South Korean inflation accelerates to 3.7% in September (Bloomberg)

• Citi upgrades China GDP growth forecast amid of a bottom (Bloomberg)

• US credit rating already includes possible shutdown, Fitch says (Bloomberg)

• US trade deficit shrinks to near three-year low of US$58.3bn, reflecting a pullback in American demand for foreign merchandise (Bloomberg)

• US jobless claims tick up slightly, underscoring labor market strength (Bloomberg)

Charts of the Week

This segment of the Morning Wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations and for illustrative purposes only. Any discussion of past performance is for educational purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200 – Testing Times

ASX 200 daily chart (Source: Commsec)

The ASX 200 has come to life recently, but not in the way the bulls would have hoped for. The 7000 level has given way and right now the price action is testing the swing lows from January and March. This support, around 6900, is critical. If it gives way, there really isn’t any support down to the 6700 and then 6400 levels. So, there is plenty to play for and it will be interesting to see how hard the bulls work to defend this level.

Question from a reader

Last week I outlined the criteria I use to identify bullish trading signals. For those unfamiliar, this was part of a broader strategy I used when I was running the trading division at a previous employer.

It is important to note that this is just one part of the strategy. There was risk management, stop loss management and position management elements that made up the strategy in its entirety.

I did get a question from a reader (and former subscriber to the business that I worked for) which I thought worth sharing with the broader audience. Thanks to Alan for sending it in.

The question was: How well does this type of trading work in the current sideways range trading market?

The answer, generally speaking, is nowhere near as well as it would work in a trending market. This style of signal and any trades that ensue are trend following signals.

That said, the system will only throw up signals that meet the criteria. In recent weeks, I have talked about the fact that there simply haven’t been many signals to choose from. In that sense, the system self selects out of sideways markets because it simply doesn’t provide many (or any) signals to consider as trades.

This was always one of the things I loved about having a trading portfolio. Unlike an investing portfolio, where you typically stay invested through the cycle, and good trading strategy will take you out of the market when the conditions are not conducive to your style of trading.

Ramelius Resources (RMS) – The one and only

Ramelius daily chart (Source: Commsec)

Right on cue, the scan I run threw up just one signal this morning – Ramelius Resources. Interesting that it is a gold stock as well. They are some of the few types of stocks still seeing buying interest amid a weaker market. RMS looks solid – nice, clear support at $1.20, breakout level just above $1.50, good price momentum recently, support by rising average volume. Would need to see a clear breakout to be more interested in this one and, given it’s the only buy signal the system is throwing up in the entire market, perhaps that’s telling us that right now is not the time to be buying momentum stocks.

Oil Selloff: Facts or Fear?

WTI crude is down 12% from last week's peak of around US$94 a barrel. Although the bulk of this move took place on Thursday after US gasoline stockpiles jumped to 6.4 million barrels, the single largest weekly build in gasoline since January 2022. The data was also well above analyst expectations of a drop of 0.3 million barrels.

WTI crude chart (Source: TradingView)

There's also the argument that the inventory data could be misread and oil demand may be a lot stronger than what the data suggests. Here's why:

• Gasoline stations tend to destock around this time of the year

• If prices start to fall, they refill more slowly

• The EIA counts those refills as implied demand

• Whereas actual gasoline demand occurs when drivers fill up

So what could be happening right now?

• There may be a slow down in refilling amid falling prices and consumers were less inclined to fill their tanks (due to recent high prices)

• As oil prices fall, a double catch up in demand as both consumers fill up an gas stations refill

The below real-time data from Rystand RealtimeCube shows that US road transportation demand remains intact and in-line with a seasonal uptick around the October period.

Source: Rystand RealtimeCube

Goldman says the gasoline and recession woes are overdone. "We stick to our view that robust demand and elevated pricing power will allow OPEC to keep Brent in a US$80-105 a barrel range, and in particular to push Brent to US$100 a barrel by next spring," the analysts said.

Is this a tactical time to chime in on the energy trade?

ASX corporate actions occurring today:

• Trading ex-div: MFF Capital Investments (MFF) – $0.05  

• Dividends paid: Lycopodium (LYL) – $0.45, Lifestyle Communities (LIC) – $0.06, Paragon Care (PGC) –$0.006, Lindsay Australia (LAU) – $0.03, Cleanaway Waste Management (CWY) – $0.02, Pental (PTL) – $0.01, Vita Life Sciences (VLS) – $0.03, Laserbond (LBL) – $0.008, SRG Global (SRG) – $0.02, Genesis Energy (GNE) – $0.08 

• Listing: None 

Economic calendar (AEST):

• 10:30 pm: Canada Unemployment Rate

• 10:30 pm: US Non Farm Payrolls

• 10:30 pm: US Unemployment Rate