ASX 200 slumps on US inflation miss, CBA result triggers banks mini-correction

Today in Review

Markets

The S&P/ASX200 (XJO) finished 55.9 points lower at 7,547.7, smack-bang in the middle of its trading range. Despite the modest showing of strength in the main index, that is clawing back 50% of its initial 110 point drop, advancers lagged decliners by a dismal 68 to 210 in the broader based S&P/ASX 300 (XKO).

Only two sectors finished in the black today, Consumer Discretionary (XDJ) (+0.04%) and Industrials (XNJ) (+0.26%). Discretionary experienced a bit of push and pull from earnings-inspired moves in IDP Education Ltd (IEL) (+8.3%) and G.U.D. Holdings Ltd (GUD) ( -7.8%). Whereas Industrials were helped by strong earnings-inspired moves by Downer EDI Ltd (DOW) (+11.1%), Seven Group Holdings Ltd (SVW) (+7.0%), and Computershare Ltd (CPU) (+4.9%).

Hardest hit sectors were Gold (XGD) (-2.8%) (kinda answers our question from yesterday!), Information Technology (XIJ) (-1.3%) (in response to weak US tech stocks overnight), and Financials (XFJ) (-1.2%) which was substantially undermined by the fall in Commonwealth Bank of Australia's (CBA) (-1.7%) following the release of its first half results.

ChartWatch

S&P/ASX 200 Financials Sector (XFJ)

The XFJ has been one of the best performing sectors since the October lows. Its 13.3% gain sits fourth behind Real Estate Investment Trusts (XPJ) (+19.8%), Health Care (XHJ) (+18.5%), and Information Technology (XIJ) (+14.0%)).

Each of the other Big 4 banks (ANZ, NAB and WBC), gapped lower after CBA's result, but each recovered steadily during the trading session. The mini-correction has dented, but not reversed the very strong short term uptrends prevalent on each of the Big 4 banks' charts. Still, gaps lower require close monitoring to ensure they don't develop into price action indicating a more sinister changing of the demand-supply environment!

Commonwealth Bank of Australia (ASX: CBA)

Gaps a plenty! That's part and parcel of earnings season. CBA's gap is down, but it finished with far from a bearish candle. In fact, the long downward pointing shadow is indicative of buy the dip activity. Importantly, the price has also closed above the short term trend ribbon, meaning the short term uptrend is intact.

There are some issues for the bulls on this chart, however. Today's fall sets 117.75 as a lower peak to 118.24 and with today's low below the last trough at 113.97, we're now in lower peaks and lower troughs price action. I also note increasing frequency of black candles over the last few weeks.

CBA needs to sort these items out quickly to quell any doubts over the prevailing short and long term trends. Ideally, we see a resumption of demand-side candles and higher peaks and higher troughs. A close below today's low of 111.56 would signal the short term trend has likely changed to down, and a close below 110.94 would confirm it.

IDP Education (ASX: IEL)

IEL is the piggy in the middle in today's ChartWatch! Rather than double-greens, it has the dreaded double-pinks! Add in consistent lower peaks and lower troughs, and predominantly supply-side candles, and it has been a tough time for IEL shareholders for the past 12-months.

Today's gap and run provides some hope the tide of excess supply might be changing. Investors saw something in today's results which changed their mind on the stock. Many decided it signals an improvement in IEL's earnings outlook, and therefore they either wanted to buy, or buy back their shorts! Either way, it's a fledgling step towards turning IEL's terrible trends.

There is a black mark hanging over the chart though. Literally. It's today's big black candle! Ordinarily, if the news is perceived to be unequivocally good, we would expect to see a long white candle after the gap up. Instead, today's candle demonstrates trepidation among investors to fully commit to the "this time it's different" mantra.

Despite it's bearish tinge, today's gap and black candle gives us an excellent point of no return for the current long term downtrend. I suggest if IEL can close above today's high of $23.33 – which coincides nicely with the top of the long term downtrend ribbon – it likely signals the end of the long term downtrend.

On the other hand, if it closes back below the start of the gap at 20.44, it likely signals the long term downtrend is very much intact.

Seven Group Holdings Ltd (ASX: SVW)

I wanted to end with my favourite chart from today, a text book example of my trend following strategy. It's probably the stock which has featured most consistently over the past 12-months in the daily shortlists I regularly publish to X.

Nothing goes up in a straight line, and wobbles in October and January might have triggered some shorter-term traders to take profits. But, the long term trend (dark green ribbon) has never been seriously challenged since it began back in January 2023.

Today's gap and run, and strong demand-side candle, confirms there's still plenty of excess demand in the system for SVW. Today's volume spike indicates likely supply removal (i.e., getting rid of any deadwood supply which don't believe SVW is destined for higher prices). This is important, because it means there's less supply to get in the way of the motivated demand which is so clearly evident in the trends, price action and candles

Economy

Today

• USA Core Consumer Price Index (CPI)

  • +0.4% to 3.9% p.a. in Jan vs forecast +0.3% to 3.7% p.a. vs +0.3% in Dec to 3.9% p.a.

  • "Much stronger than we had been expecting...inflationary pressures remain for services...We continue to expect the first policy rate cut in June, with higher inflation proving an impediment to earlier cuts" –Citi

Later this week

Thursday

• 11:30 AU Employment change and unemployment rate: forecast +20,700 in Jan vs -65,100 in Dec & forecast 4.0% in Jan vs 3.9% in Dec

Friday

• 00:30 US Core Retail Sales: +0.1% in Jan vs +0.4% in Dec

Saturday

• 00:30 USA Core Producer Price Index (CPI): forecast +0.1% in Jan to 1.4% p.a. vs +0.0% in Dec to 1.0% p.a.

• 04:10 USA Preliminary University of Michigan Consumer Sentiment: 79.9 in Feb vs 79. in Jan

Latest News

Don't panic over missed gains: How to navigate stocks that surge during ASX reporting season

IDP Education crushes short sellers with strong first-half result, shares up 12%

Everything you need to know about CBA's half-year result

Dividend yield scan: 5 high yield stocks set to grow dividends in FY24

Morning Wrap: ASX 200 to tumble, Dow logs worst day since March 2023 + US CPI breakdown

Evening Wrap: ASX 200 lower as earnings sends major blue chips in starkly different directions

Don't miss an ASX announcement this reporting season, check out our comprehensive H1 FY24 Earnings Season Calendar and set up and receive announcements direct to your inbox on Market Index: Create Alert Now

Interesting Movers

Trading higher

• +18.4% Sayona Mining (SYA) - No news, but noticing some potential selective short covering moves in beaten down battery metals…🤔

• +11.1% Downer EDI (DOW) - Half Yearly Report and Accounts

• +11.1% Latin Resources (LRS) - Appointment of Peter Oliver to Executive Director

• +10.8% Core Lithium (CXO) - Change in substantial holding, noticing some potential selective short covering moves in beaten down battery metals…🤔

• +10.3% AMP (AMP) - AMP FY23 Results and continued capital return

• +9.4% Syrah Resources (SYR) - No news, but noticing some potential selective short covering moves in beaten down battery metals…🤔

• +8.3% IDP Education (IEL) - 1H FY24 Interim Financial Report (Appendix 4D)

• +8.0% Chalice Mining (CHN) - No news, but noticing some potential selective short covering moves in beaten down battery metals…🤔

• +7.8% Brainchip Holdings (BRN) - Response to ASX Price Query

• +7.0% Seven Group Holdings (SVW) - Appendix 4D and Half Year Financial Report

• +6.0% IPD Group (IPG) - No news, rise is consistent with prevailing short and long term uptrends

• +5.9% RPM Global Holdings (RUL) - No news, rise is consistent with prevailing short and long term uptrends

• +4.9% Computershare (CPU) - 1H FY24 Half Year Report (Appendix 4D)

• +4.5% Bellevue Gold (BGL) - RIU Conference - Project Update

Trading lower

• -52.4% SSR Mining Inc. (SSR) - Announcing Suspension of Operations at Copler (due to massive landslide)

• -12.3% Graincorp Class A (GNC) - GrainCorp provides FY24 earnings guidance

• -8.7% Piedmont Lithium Inc (PLL) - No news, fall is consistent with prevailing short and long term downtrends

• -8.6% Fletcher Building (FBU) - Fletcher Building announces HY24 Results, fall is consistent with prevailing short and long term downtrends

• -7.8% G.U.D. Holdings (GUD) - Appendix 4D - Half Yearly Report and Accounts

• -6.0% Ridley Corporation (RIC) - Half Yearly Report and Accounts

• -5.2% Seek (SEK) - Continued negative response to yesterday's FY2024 Appendix 4D and Half Year Report

• -5.2% Block Inc. (SQ2) - No news, sharp fall in US tech stocks overnight

• -5.1% West African Resources (WAF) - Continued negative response to 6 Feb: 2024 Production Guidance, fall is consistent with prevailing short and long term downtrends

• -5.1% Life360 Inc. (360) - No news, sharp fall in US tech stocks overnight

• -5.0% Charter Hall Social Infrastructure REIT (CQE) - Continued negative response to yesterday's Appendix 4D and HY24 Interim Financial Report, fall is consistent with prevailing short and long term downtrends

Broker Notes

• Audinate Group (AD8) retained at hold at Shaw and Partners; Price Target: $17.90

• AMP (AMP) retained at neutral at Jarden; Price Target: $1.15

• Ansarada Group (AND) downgraded to hold from add at Morgans; Price Target: $2.50 from $2.00

• ANZ Group (ANZ) retained at neutral at Jarden; Price Target: $26.70 from $26.30

• Beach Energy (BPT)

  • Upgraded to buy from neutral at Citi; Price Target: $1.80 from $1.65

  • Retained at buy at UBS; Price Target: $1.95 from $1.90

• Breville Group (BRG)

  • Downgraded to neutral from positive at E&P; Price Target: $26.02

  • Retained at buy at Goldman Sachs; Price Target: $28.00 from $30.20

  • Upgraded to accumulate from hold at Ord Minnett; Price Target: $26.50 from $27.00

  • Retained at buy at UBS; Price Target: $28.30 from $28.60

  • Retained at neutral at Jarden; Price Target: $23.60 from $23.80

• Car Group (CAR)

  • Retained at neutral at Citi; Price Target: $34.70 from $34.30

  • Downgraded to neutral from positive at E&P; Price Target: $33.00 from $32.50

• Challenger (CGF)

  • Retained at buy at Goldman Sachs; Price Target: $7.50 from $7.00

  • Retained at sell at Citi; Price Target: $6.65 from $6.05

  • Retained at neutral at UBS; Price Target: $7.10 from $6.80

  • Retained at overweight at Jarden; Price Target: $7.55 from $7.25

• Collins Foods (CKF) retained at neutral at Jarden; Price Target: $10.00

• Computershare (CPU)

  • Retained at buy at Goldman Sachs; Price Target: $27.00

  • Retained at buy at Citi; Price Target: $29.00

  • Retained at overweight at Jarden; Price Target: $27.90 from $27.85

• Charter Hall Social Infrastructure REIT (CQE) retained at underweight at Jarden; Price Target: $3.05

• CSL (CSL)

  • Downgraded to neutral from buy at Citi; Price Target: $305.00 from $325.00

  • Retained at overweight at Jarden; Price Target: $296.02 from $298.57

• Domain Holdings Australia (DHG) retained at overweight at Jarden; Price Target: $3.80

• Domino's Pizza Enterprises (DMP) retained at neutral at Jarden; Price Target: $50.00

• Deterra Royalties (DRR) retained at neutral at Goldman Sachs; Price Target: $5.00 from $5.10

• Dexus (DXS) retained at underweight at Jarden; Price Target: $7.70

• Evolution Mining (EVN) retained at underweight at Jarden; Price Target: $3.10

• Healthco Healthcare and Wellness REIT (HCW) retained at buy at Bell Potter; Price Target: $1.70 from $1.75

• Hansen Technologies (HSN)

  • Retained at buy at Shaw and Partners; Price Target: $6.90 from $6.30

  • Retained at buy at UBS; Price Target: $6.75

• IDP Education (IEL) retained at overweight at Jarden; Price Target: $27.25

• Inghams Group (ING) retained at overweight at Jarden; Price Target: $3.90

• IPD Group (IPG) retained at buy at Bell Potter; Price Target: $5.90 from $5.75

• Janison Education Group (JAN) retained at buy at Shaw and Partners; Price Target: $0.07

• James Hardie Industries (JHX)

  • Retained at buy at Goldman Sachs; Price Target: $61.65 from $62.50

  • Retained at buy at Citi; Price Target: $63.00 from $55.30

  • Upgraded to overweight from neutral at Jarden; Price Target: $57.00 from $48.00

  • Retained at buy at UBS; Price Target: $66.50 from $67.70

  • Upgraded to overweight from neutral at Jarden; Price Target: $57.00 from $48.00

• Lotus Resources (LOT) initiated spec buy at Bell Potter; Price Target: $0.50

• Macquarie Group (MQG)

  • Retained at neutral at Goldman Sachs; Price Target: $183.82 from $180.80

  • Retained at neutral at Citi; Price Target: $161.00

  • Retained at neutral at UBS; Price Target: $185.00

• MMA Offshore (MRM) initiated buy at Bell Potter; Price Target: $2.55

• Reliance Worldwide Corporation (RWC)

  • Retained at buy at Goldman Sachs; Price Target: $4.70

  • Retained at neutral at Citi; Price Target: $3.90

  • Retained at neutral at Jarden; Price Target: $4.10 from $3.95

• SEEK (SEK)

  • Downgraded to neutral from overweight at JPMorgan; Price Target: $25.30 from $27.00

  • Upgraded to outperform from neutral at Macquarie; Price Target: $29.00 from $26.00

  • Retained at sell at Goldman Sachs; Price Target: $23.50 from $25.00

  • Retained at buy at UBS; Price Target: $29.20 from $27.40

  • Retained at buy at Jarden; Price Target: $29.00 from $29.60

• Strike Energy (STX)

  • Upgraded to overweight from neutral at Barrenjoey; Price Target: $0.45 from $0.48

  • Retained at buy at Bell Potter; Price Target: $0.46 from $0.60

  • Retained at buy at Goldman Sachs; Price Target: $0.50

• Seven West Media (SWM)

  • Retained at sell at Goldman Sachs; Price Target: $0.24 from $0.27

  • Retained at neutral at UBS; Price Target: $0.26 from $0.27

• Temple & Webster Group (TPW)

  • Upgraded to outperform from neutral at Macquarie; Price Target: $12.30 from $7.45

  • Upgraded to buy from neutral at Citi; Price Target: $13.00 from $7.40

  • Retained at buy at Jarden; Price Target: $12.67 from $8.56

Scans

This article first appeared on Market Index on 14 February 2024.