Technicals | Oct 03 2023
By Michael Gable
The past week has seen a fairly flat performance from the Australian market. It seems to be finding support near the 7000 level at the lower part of the trading range.
However, price action today will once again severely test the resolve of market participants. The concern continues to be rising bond yields.
Inflation is coming down, employment remains strong, and leading indicators are looking promising. However, this is causing concerns that the economy is looking too strong, and hence the thought that rates will stay higher for longer.
That sentiment seems very widespread and the spike in bond yields these past few weeks continues to look like a blow-off top.
Rising yields now seems to be a very crowded trade, so if markets can hold in here and rates then normalise, that will set markets up for a recovery into the end of the year.
Rates won't continue higher at this rate; they will over-extend (or maybe they already have?) and then mean revert.
At this stage, we think it is prudent for look for that to happen and position accordingly, rather than chase the final moments of something which has already run very hard.
In this week's report, we have an updated chart of the S&P500 Index.