MARKETS SPECTATOR: Move over bears, next stop 4900

It's been a hugely significant day with the ASX powering past its psychological barrier of almost a year. It's been a sea of green ever since Tuesday's rate cut.

Today’s market performance speaks volumes about the psychological state of the market. To see participants willing to bid the market higher on a Friday afternoon, and ahead of huge US event risk this evening is a very encouraging sign.

It wasn’t long ago at all that traders struggled to hold positions for a few days for fears that they would get caught with their pants down the next morning following another hugely volatile move in offshore markets. Fast forward a few months and now we’re seeing enough confidence for traders to actually hold positions and even open new ones on a Friday afternoon. For the last couple of years, if the market had been up for the week, Friday’s were the domain of the profit taker.

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Looking at the bigger picture, it’s been a very impressive week for the domestic market as it finally broke out of a year-long trading range, as can be seen the chart above.

The catalyst was Tuesday’s surprise interest rate cut from the RBA, which has spurred a flurry of buying among consumer discretionary and financial stocks, making them the top performing sectors for the week.

This also seems to have triggered a change in the outlook for the Australian dollar. For the best part of two years the Australian dollar has been viewed, both domestically and from offshore as a serious head wind for both the domestic economy and market.

Now, with rates forecast to be cut to record lows over the next six months, this perception seems to be changing and in turn begins to remove what has been a serious hurdle for money flows into Australian equities.