Volatility continues with relief rally

10:03 AEST, Monday, 19 January 2015

Volatility continues with relief rally
By Ric Spooner (Chief Market Analyst, CMC Markets)

This morning’s market trading will be about relief that stock market reaction to the Swiss Bank’s surprise move has been relatively limited. Stronger oil and copper prices are likely to fuel investor relief.

The relatively limited stock market reaction to the Swiss Bank decision is logical. The direct impact on most Australian companies will be negligible providing any further financial market shock is contained. With the benefit of hindsight, Friday’sselling on the local market may have been a little over done, setting the scene for some recovery today.

While energy investors will be relieved to see Friday’s rally in oil prices, further upside would be needed to conclude that the market was forming a base or that the current rally is more than just a temporary corrective move. While it’s certainly possible that oil could form a base around these price levels, the market will remain vulnerable for some time to come given the current production surplus.

While stock market volatility has increased in recent months, industrial stock valuations are anchored by an outlook for moderate economic growth and ongoing low interest rates. This is reflected in the fact that today’s rally is likely to see the ASX 200 index return to within 1% of where it started the month.

From a technical point of view, the ASX 200 index is trading within a large triangle formation bound by resistance at around 5460 and support around 5150. It will take a break out of this range to establish a new trend direction. In the short term, the 20 and 55 day moving averages represent potential resistance around 5375.

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