The Santa rally is looking like a cheap toy.
It looks as though investors’ Christmas rally has broken in the first week of the New Year. Traders finished 2015 contemplating the possibility of the ASX breaking out of the top of its well established trading range. A week later they are staring at the prospect of break below the support.
Today’s market is going to be driven by China. Markets will be focussed on the opening of China’s stock market drops at 12.30pm and whether or not the Yuan fix will be moved lower against the US Dollar at 12.15pm.
At the end of the day, China’s currency devaluation has potential to be a lot more significant for global markets than volatility in its stock market. China’s decision to devalue the Yuan may be nothing more than a sensible and incremental move to rebalance the currency against a basket of trading partner currencies. At this stage though, markets are concerned that it could be something larger, triggering capital outflows from emerging economies and putting strain on financial markets. Markets also have in the back of their minds that China’s currency devaluation may reflect mounting concern by authorities about the state of the economy.
The impact of removing the circuit breaker trading halts on China’s stock market is hard to judge. Traders will be prepared for anything including the possibility that the market could stabilise. Valuations on China’s stock market have already fallen considerably and there is a possibility that authorities will seek to use buying by state owned funds to bring some calm to the market.
The bottom of the current trading range in the ASX 200 index is going to be a key psychological level for traders over coming days. Despite recent volatility, the ASX 200 remains within the 4900- 5385 range that has contained it since August. A clear break below support would be an indication of escalating concerns on world stock markets. However, experienced traders will be alert to the possibility of a minor false break to the downside.
Gold stocks may attract some support this morning. Gold is attracting safe haven buying and showing signs of breaking through a zone of resistance around $1100. The Aussie Dollar has weakened at the same time which is an added benefit for gold mining stocks.
Frequently Asked Questions about this Article…
The Santa Rally refers to the tendency for stock markets to rise in the last week of December through the first two trading days in January. It's significant for investors as it often brings positive returns, but this year it seems to have faltered, impacting investor sentiment.
China's currency devaluation can have a significant impact on global markets by triggering capital outflows from emerging economies and putting strain on financial markets. It may also reflect concerns about China's economic health, affecting investor confidence worldwide.
Traders are focused on China's stock market and currency movements because they can influence global market stability. The Yuan's value against the US Dollar and the performance of China's stock market are key indicators of economic health and can drive market trends.
State-owned funds in China may be used to stabilize the stock market by purchasing stocks to calm market volatility. This intervention can help restore investor confidence and prevent further declines in market valuations.
The ASX 200 index's trading range is significant because it serves as a psychological level for traders. A break below the established range could indicate escalating concerns in global stock markets, while staying within the range suggests stability.
Gold stocks might attract investor interest during market volatility because gold is considered a safe haven asset. When markets are uncertain, investors often turn to gold, which can drive up its price and benefit gold mining stocks.
A weakening Aussie Dollar benefits gold mining stocks because it increases the local currency value of gold, boosting revenues for Australian gold producers. This can make gold stocks more attractive to investors.
Investors should watch for any breaks below the current trading range of the ASX 200 index. A clear break could signal increased global market concerns, while a minor false break might not have significant implications.
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