S&P 500 breaks higher, Aussie dollar at 72.50, ASX futures up 62 points

There was broad buying in financial markets overnight: US markets up, European markets up, oil up, Asian equity futures up (and US dollar index lower - a good thing for many). So the US S&P 500 index has now closed well above its daily closing high since the late August fall. This helped lift ASX 200 futures higher and will put our market on track for an opening this morning that should exceed 5,250. In addition to all of this, the mild retreat of the US dollar that you can see in today's second chart will offer some positive short-term sentiment to emerging markets and currencies that face off against it, including the Australian dollar.

Australian traders and investors will be curious today about whether this could be the start of an ASX 200 up-trend now that resource stocks are lifting and market conditions are providing adequate support for the finance sector. Irrespective of the supportive short-term technical factors relating to the ASX 200, in today's first chart I've taken a step back to get a two-year view and transposed US equity market volatility (VIX) over the ASX 200, and this will give you a sense of how previous spikes in volatility come to an end and precipitate periods of recovery on the ASX. Now it's never as easy making money out of these events as it looks on the historical charts, but our job is to collect enough corresponding analysis (while remaining aware of confirmation bias) to suggest that there is good reason to be buyers or sellers in markets, and Rivkin Global Investment Director Oliver Gordon has provided Rivkin Global clients with analysis that points to a short-term level of buying exhaustion in the region not too much higher (~5,300) from here. So we've had a good run, may be time for a breather, but if volatility continues to die off this may suggest a medium-term up trend will ensue.

Importantly, we are now 250+ points from the precarious 5,000 level on the ASX 200 and even if buying does die off after a week and a half of gains, equity market volatility is dropping back to 'normal' levels and there is a good chance the August storm has passed.

Here is the story behind today's three charts:

  1. You can see the peaks in the orange line (S&P 500 volatility, or VIX, echoing investor uncertainty) forming an apex and heading lower, which generally corresponds with a rising equity market shown here in black, representing the ASX 200 equity index.
  2. The Australian dollar (black line) has risen steadily over the past two-three weeks and has broken above its highs since the August falls, while the US dollar index (orange) has come off its highs, which will benefit everything from emerging market debt markets to commodity prices - I'd love to see that orange line continue to fall.
  3. The US S&P 500 equity index has finally broken through and moved higher from the 2,000 level, which we'd hope to form some buying support at that level to extend the gains.
And for those of you waiting for the Woodside Petroleum (WPL) rally to end, oil was up another 3.4% last night - so WPL and the likes of STO should continue to trade well today.

Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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