Friday we saw heavily shorted GME (GameStop) targeted again seeing the share price shoot back up to $325. It all started last week a horde of traders rushed to buy the video game company’s stock in an attempt to crush short-sellers and drive its price to astronomical levels. This has left the rest of the market feeling a bit uncertain and as a result, seeing a broad fear-driven sell down.
Traders and investors do not like uncertainty, and with the market rallying so strongly after the election, we are seeing people reduce risk and lock in profits. We still don’t believe this is the big one, but it could lead to a correction which is usually around 10%. Once again, nothing in the background has changed. US reporting has beat expectations, the US FED is going to stay extremely accommodative, especially as the US missed on Quarterly GDP. Vaccine rollouts are on their way and do not forget more Fiscal Stimulus Aid.
The current volatility in the market creates opportunities for us, it is all timing and strategy. We need to be patient here and see how this plays out, but be ready to take action when we see signs of sentiment turn positive again. There is plenty of traders and investors that will be keen to get back into this market when things settle down.
With US shares falling strongly, our shares will surely follow. To the benefit of our market however, we have seen the Australian dollar fall, and valuation metrics on Australian shares remain lower than their US counterparts. Our market is also about to enter a reporting season, which will kick off in earnest next week. We will also see an RBA meeting tomorrow, where they are expected to keep monetary policy unchanged, as well as update the market about their expectations for 2021. Today we will also see domestic home loans data, as well as Chinese manufacturing data, both of which could impact our market. On the virus front, a community transmission of the virus in Perth has led to a lockdown there and a border closure with Victoria.
Technically, the XJO fell back to a support around 6,600 on Friday, and this could break today. There is also some tentative support around 6,580 but if that breaks, which the futures are suggesting, we could see a move back to the key 6,500 level. There is no clear short-term trend on our market, which had been in a broad sideways range but the longer-term trend remains bullish; should the XJO return to that longer-term trend, we could see it fall to 6,400 before recovering.
US shares fell again on Friday, with recent volatility, concerns about valuations, and delays to an expected $1.9trn US stimulus package weighing on markets. US economic data was mostly positive however, with spending and pricing data coming in better than expected.
Company earnings reports from Friday were also quite positive, although Chevron was a dark spot, with a slight loss vs an expected slight profit. Every major sector close lower on Friday, with Oil & Gas stocks the weakest after Chevron’s report, while Technology and Basic Materials stocks also falling strongly.