MARKETS SPECTATOR: Bully boys

The bulls will be chomping at the bit today after yesterday's 14-month high. If building approvals come in strong mid morning, expect the rally to continue.

It’s going to be another interesting ‘tug-o-war’ battle on the market today, with the S&P/ASX 200 benchmark expected to open about 0.1 per cent firmer at 4443.

Yesterday, the market hit 14 month highs in morning trade before the buyers stepped back, letting the market drift lower. It closed well off its high which indicates a reluctance for the bulls to aggressively bid prices higher, especially given the area is such a strong resistance level, as can be seen in the chart below.

So the battle front is set once again. With the market drifting lower yesterday due to a lack of buying, rather than overwhelming selling it looks like its just a matter of time before the bulls drive prices decisively through the 4450 level.

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We’ve got a big session on the economic data front with both building approvals and retail sales due at 1130 AEST. Expectations are for a huge rebound in building approvals to 4.8 per cent from minus 17.3 per cent last month while retail sales are expected to show growth of 0.5 per cent from minus 0.8 per cent last month.

These are important releases and usually have sort of market moving impact on both the Australian dollar and the benchmark S&P/ASX 200 index. Interestingly, the Australian dollar has slumped the best part 1.5 cents in the last 36 hours following Tuesday’s surprise rate cut, meaning that there will be a lot of traders positioned short.

If these economic releases meet or even beat expectations then we could see a sharp short covering rally in the Australian dollar as all the shorts look for the exit door.

In equities, a strong read on retail sales could see the discretionary retailers rally further; many participants were blind sided with the Reserve Bank on Tuesday meaning the market has bought retail names (JB HiFi, Harvey Norman, David Jones) aggressively in the last two sessions.

Stronger building approvals could have the same impact for housing stocks. These stocks have been bid higher since Tuesday as well on the premise that the low interest rate environment will trigger a rebound in the subdued housing market.

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