Australian Market Preview 26 June

Investors should always look for how the market moves in response to its 'current wall of worry'. On Wednesday, and Thursday locally, markets were mauled on the back of a notable uptick in US Coronavirus cases. On the ASX, the falls were broad-based, and a number of stocks in the benchmark ASX 200 fell over 5% - generally a sign of a switch to risk-off. But, as it has done a number of times since the start of the crisis, US stocks may have thrown us a life line from their trading session last night.

Coronavirus news continued to worsen, but prices improved, the market is climing the wall of worry…
 
Wall Street's main indexes closed broadly higher, with bank stocks the key outperformers. Importantly, markets managed to log broad-based gains, and gains into the close despite continued bad news surrounding Coronavirus cases. Markets are looking for any signs that the recent uptick could lead to another round of closures, and therefore threaten the V shaped recovery - which has already been priced in by markets.
 
The governor of Texas temporarily halted the state's reopening on Thursday as the state set record hospitalisations for the 13th day in a row. Also reporting record rises in cases were a number of southern and western states, including economic powerhouse California.
 
Apple Inc (AAPL) continued to close stores, another 14 in Florida, and shares of Walt Disney Co (DIS) fell on news that it would further delay the reopening of its California theme parks.
 
Meanwhile, the head of the World Health Organisation said that it would likely be at least a year before an effective Coronavirus vaccine would be invented.
 
On the brighter side, the number of people hospitalised people in New York fell below 1000 per day for the first time since the peak of the crisis in March. 
 
In other markets the recovery was modest, but widely felt. Equities rose in Europe, and commodities prices were generally higher. Bonds retreated from their gains the previous session, and risk-on currencies such as the Australian Dollar rose. The Volatility Index (VIX) retreated 4.8%, down from its nearly 8% gain Wednesday.
 

Durable Goods Orders in the United States increased by 15.8% on a monthly basis to $194.4 billion in May following April's decline of 17.7%. The result was significantly better than market expectations for a 10.6% increase. Durable goods are an important economic indicator because they represent large, and generally expensive items such as industrial and farming machinery, and for retail consumers, household whitegoods. In this way, Durables goods data spans both business and the consumer. It provides an insight into their collective confidence into the future - as one would not likely make an investment in a durable good without sufficient confidence. 
 

Thursday saw some of the higher-flying sectors such as gold and technology get hammered. Many of the markets recent favourites were down over 5%. Today we look at a gold and other precious metals producer/explorer that not only managed to dodge yesterday's carnage, but to thrive, rising 5.5%.

On Monday, Alkane (ALK) reported significant thick high grade intercepts at its Tomingley Gold Project in Central New South Wales that would likely extend the production capacity of the existing mine. As a producer/explorer, it stands to benefit from the prevailing strength in the gold price.

Looking at Alkane's chart, we can see a clear uptrend in the short, medium and long term timeframes for ALK shares. None of these trends look particularly challenged at the moment, and yesterday's trading saw the stock push to new 12-month highs. The previous long term high set on 13 Feb at $1.16 now represents a point that should represent short term static support - that is, if the price should retrace to this level, buyers should re-enter the market. Longer term, dynamic support should be seen around $1. There are few resistance levels to the upside, making this an attractive risk reward opportunity.