ASX200 Christmas rally postponed?

10 days out from Christmas is usually around the time that the fund manager community starts to invest surplus cash holdings into the market in anticipation of the Christmas rally.

Commodities 6

While there is some incentive from a performance perspective to see their favourite stocks end the year on a high note, fund managers are no different from the rest of us. They are aware of the bullish seasonal trend at this time of the year and attempt to benefit from it.   

However, despite the commencement of vaccine rollouts in some countries, an acceleration in new coronavirus cases and a further deterioration in the Australia – China relationship may prompt second thoughts amongst the Australian fund manager community

On Wednesday, Germany will enter a new hard lockdown over Christmas, the same day that London will introduce Tier 3 restrictions. In the US, the NY Governor warned that the state is headed toward a second full lockdown if new infections and hospitalisations continue at their current pace.

Also overshadowing the Christmas cheer for the Australian equity market, confirmation yesterday that China has formally banned imports of all Australian coal.

Furthermore, the 40% rise in the price of iron ore over the past 2 months is reported to have prompted calls from within China for regulatory intervention. The 62% MySteel index fell $6.15 overnight, prompting keen interest to see how iron ore futures trade in today’s session on the Dalian exchange.

Following on from last week’s article on the ASX200 here and based on the events outlined above we are pleased that our suggestion to take some money off the table has worked out well thus far. More so given the bearish divergence on the RSI indicator following the index's second rejection from above the key 6700 level.

The preference remains to add to core longs on a dip back towards interim support 6400/6300 or wait for a sustained break above 6750 to confirm the arrival of the Christmas rally and that a move towards 7000 is underway.

ASX200 Christmas rally postponed?

Source Tradingview. The figures stated areas of the 15th of December 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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