Note from the MD: Markets still trending up despite February slump

While the market edged marginally higher overnight, the benchmark ASX 200 market (XJO) ended the month in a slump overall, down 2.9% to 7,258.4 in February.

While the market edged marginally higher overnight, the benchmark ASX 200 market (XJO) ended the month in a slump overall, down 2.9% to 7,258.4 in February.

From a sector perspective, Materials (-6.9%) and Financials (-3.8%) dragged heavily. While the XJO has lost 0.82% in the last five days, however, it sits 4.86% below its 52-week high of 7,624.80 (as at 11.40am 1/3/23). To put this in perspective, the market rose 6.2% in January and 6.1% in November, while dropping 3.4% in December and 2.9% for February.

So while the XJO continues to trade in this zig-zag fashion, not sideways, the index has been gaining ground overall in the last 4 months, up 6%.

Because of this, we see 3 pivot point support levels around 7,230, 7,203 and 7,181 and pivot point resistance levels around 7,279, 7,301 and 7,328.

With company reporting season now over, the markets may stabilise, with implied volatility flat for the month. The XJO volatility index (XVI) is currently at 12.83, sitting in a 14 – 11 range this year. Anything below 15 indicates a bullish market and low volatility.

Today, following a weak show in European and US markets overnight, this translated to the XJO opening lower and dropping half a per cent this morning.

There are some major economic data announcements to come out today, including fourth quarter 2022 GDP growth at 11:30 am, which is expected to rise 0.7% for the quarter and 2.7% year-on-year. This will be released with a monthly CPI Indicator, which is expected to be 8.1%.

With the weak European and U.S. lead-in overnight, this GDP data will be a good indication of whether markets will remain cautious throughout the session. Stronger-than-expected economic growth and CPI numbers will most likely be met with a continued sell-off while weaker data will indicate the economy is slowing down and inflation is starting to cool, meaning the RBA may pause on another interest rate rise next week.

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