Macro: Sandcastle economics
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ST Note - ASX 200 level 7600
Junvum Kim
Sales Trader
Summary: Reporting season for ASX kicks off this month including BHP, CBA and CSL while 120 stocks go ex dividend that is equivalent to about 100 points of ASX 200 that could retest 7,600 triple top.
Half of S&P 500 (SPX) stocks reported a quarterly results with surprises of sales by +1% and earnings by +1.3% including mega cap tech stocks but for ASX, the reporting season – for half year (with full year typically in August) - kicks off this month including three of the biggest ASX 200 (XJO) constituents like BHP, CBA and CSL. Further more, 120 stocks – 40 in Feb and 80 in Mar - goe ex dividend that is equivalent to about 100 points of the index and the projected 12 month dividend yield is expected to be 4% that is the highest yield among major equity indices.
The price action of XJO since August 2021 can be seen as a consolidation after finding 7,600 resistance (triple top in Aug 21, Jan 22 & Apr 22) followed by forming 6,400 support (double bottom in Jun 22 & Oct 22). The bulk of the rally off 6,400 coincided with major commodities – gold, copper and iron ore - bottoming out in October last year. During this period, material sectors were up 24%, best performance out of 11 sectors within the index and this is not surprising as materials weight takes up about ¼ of the whole index only behind financials with 28%.
XJO closed today at 7,539 so we are about 61 points (0.8%) away from retesting the key level 7,600 and the index outperformed some of the key equity indices since 2022 with total return of +6.74% mainly due to dividends that boosted overall return, however estimated PE isn’t too high compared to two worst performing indices such as S&P 500 and CSI 300 therefore there is a scope for further rally beyond 7,600 subject to the commodity demand from China reopening – despite some of the signs copper import premiums falling to its lowest in ten months – and also RBA’s tightening stance that resulted in double digit declines in AU housing prices as the futures market currently prices in more than 50bps hike including tomorrow’s expected 25bps hike.
Bearish bet on ASX 200 off 7,600 could be setup by buying some March out of the money put XJO option (or sell 7,600 call), or short SPI futures (APH3) that currently trades at about 70 points discount to the cash index XJO mainly due to dividend components heavily offsetting the cost of carry and naturally the futures would move towards spot as it goes through ex dividends while it goes through rich/cheap stages during the cash open hours based on the theoretical fair value (cash+interest-dividends) that typically also closely tracks CFD index value.
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