Evening Wrap: ASX 200 slides as resources and energy stocks hammered again, Droneshield blasted over quarterly update

The S&P/ASX 200 closed 39.9 points lower, down 0.50%.

On the surface, it was only a modest 0.5% decline for the S&P/ASX 200 – and to be fair – the Aussie stock market continues to hover just below its record highs...

But, it was another tough day for mining and energy stocks as global growth concerns continue to ebb away at commodity prices, and therefore investor confidence in these sectors.

A couple of big moves today, both in the wrong direction, as news broke for South32 (S32) and trader favourite Droneshield (DRO). I have the relevant updates for you in tonight's Wrap, along with all of the other key moves and news.

I'll also offer a suggestion for why stocks are again struggling, and ponder the lack of response to an interest rate cut by a major central bank today...🤔

Let's dive in!

Today in Review

Mon 22 Jul 24, 4:52pm (AEST)

Markets

ASX 200 Session Chart

The S&P/ASX 200 (XJO) finished 39.9 points lower at 7,931.7, 0.50% from its session high and 0.37% from its low. In the broader-based S&P/ASX 300 (XKO), advancers lagged decliners by a dismal 80 to 186.

Just the two of the 11 major ASX sectors managed to sneak into the black today. The Consumer Staples (XSJ) (+0.65%) sector was the best performing among its peers, likely only due to its defensive nature – and a market playing defence is hardly a good look – especially when you’re hovering just below record highs.

To be fair, the only other (meagre) winner, Consumer Discretionary (XDJ) (+0.13%) is hardly what you’d call defensive. I propose it’s likely still benefitting from a few solid trading updates among its constituents last week.

ASX Consumer staples and Discretionary stocks today

The rest were varying degrees of awful, to the extent of -1.6% awful for Energy (XEJ) and -1.0% awful for Resources (XJR).

Falling commodity prices (yes, again!) were to blame here, but it also didn’t help that South32 S32 plunged 12.6% after it warned that mining of areas at its WA-based Worsley Alumina operations would likely be stymied by conditions imposed by the WA Environmental Protection Agency.

Commodities were belted again!

ASX Energy and Resources stocks today

Looking at the chart of the XRJ below, I suggest resources stocks want to arrest the precipitous plunge they started exactly 2 months ago very soon, with today's low tipping index prices not seen since October 2022.

S&P ASX 200 Resources Sector Index chart

With short and long term trends well-entrenched to the downside, there remains the distint possibly that more pain is in store if the June low doesn't hold. I suggest it must hold in an emphatic fashion (i.e., long white candles and or low downward pointing shadows).

With benchmark yields on the rise both locally and abroad (see ChartWatch for more details), the interest rate sensitives of Real Estate Investment Trusts (XPJ) (0.91-%) (i.e., lots of debt), and Communication Services (XTJ) (-0.8%), and Information Technology (XIJ) (-0.7%) (i.e., high PE / high growth) also did it tough today.

ChartWatch

US 2-Year T-Note Yield %

Pay attention to those last 2 white candles...

The last time we covered the yield on US 2’s was in ChartWatch in the Evening Wrap on 15 July. –

In that update (and about twenty prior) I alerted you do the inverse relationship between this chart and the chart of major stock indices…something along the lines of: “Benchmark yields dictate the price of money…blah…it’s all about the price of money…blah”

Without adding too much more blah to the mix, just note here the white candles in this chart…

Russell 2000 Index (RUT)

And the these last 2 black candles

And the corresponding black candles in this chart…

The last time we covered the RUT was in ChartWatch in the Evening Wrap on 16 July. In that update, we noted that the RUT is a better indicator of the underlying performance of US stocks and the US economy as well as the better of the NASDAQ, Dow Jones, and S&P 500 as a leader for our own S&P ASX 200 (because we can’t just do stuff on our own!).

And lead it did today. Leading us lower with those consecutive strong supply-side showings (Thursday and Friday). The black candles and upward pointing shadows in these two candles indicate the demand-side is feeble and the supply-side is in control. They confirm and validate Wednesday's more modest upward pointing shadow that reached toward the 2289 major point of supply.

It’s all consistent with the supply-side grappling control of the short term price action.

But! It’s always important to consider any candles within the context of the broader trend – and this is still very much short term up / long term up. Therefore, the most logical thing to do is figure out where demand may once again kick in.

I suggest the previous supply zone of 2112-2139. It will likely also coincide with dynamic supply from the short term uptrend ribbon.

As long as the RUT continues to close above these two important areas of potential excess demand the short term uptrend is intact. Watch for demand-side candles (i.e., white bodies and or downward pointing shadows) so signal the demand-side is making a stand.

China Mainland Real Estate Index

Hey, everyone...there was a PBOC rate cut today!

Just pointing out this curiosity today. That last candle is still live at the time of writing, and so, there remains the possibility demand may be about to show its hand.

See the Economy section below with respect to the People’s Bank of China (PBOC) cutting 3 key policy rates today – and one has to wonder what it’s going to take to trigger the demand-side to have a go here.

It remains a wall of supply versus a demand vacuum. What does it say about the dire situation in the Chinese real estate sector when seemingly good news doesn’t move the dial even one iota? 🤔

Economy

Today

• CHN Prime Loan Rate

  • 1-year: 3.35% -0.1% (vs forecast no change)

  • 5-year: 3.85% -0.1% (vs forecast no change)

  • Also cut 7-day reverse repo rate to 1.7% -0.1% (i.e. the rate at which PBOC lends to Chinese financial institutions)

Later this week

Wednesday

• 00:00 USA Existing Home Sales (3.99M forecast vs 4.11M previous)

• 09:00 AUS Flash Manufacturing Index & Flash Services Index

• 17:15 EUR Flash Manufacturing Index & Flash Services Index (FRA, GER, EUR, UK)

• 23:45 USA Flash Manufacturing Index & Flash Services Index

Thursday

• 00:00 New Home Sales (643k forecast vs 619k previous)

• 22:30 USA June Quarter Advance GDP (+1.95% p.a. vs +1.4% p.a. March Qtr)

• 22:20 USA Core Durable Goods Orders June (+0.2% in June vs -0.1% in May)

Friday

• 22:30 USA Core PCE Price Index June (+0.2% forecast vs +0.1% in May)

• 22:30 USA Personal Income (+0.4% forecast vs +0.5% in May) & Personal Spending June (+0.3% forecast vs +0.2% in May)

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Market Wraps

Morning Wrap: ASX 200 to fall for a third straight session, S&P 500 books worst week since April

Mon 22 Jul 24, 8:34am (AEST)

More News

Interesting Movers

Trading higher

• +10.7% Dropsuite (DSE) - Quarterly Business Update for Q2 FY24 and Investor Presentation Q2 2024 Update

• +9.3% Iress (IRE) - Iress expects increase in Adjusted EBITDA for 1H24, rise is consistent with prevailing short term uptrend, long term trend is transitioning from down to up 🔎📈

• +5.7% Perenti (PRN) - FY24 free cash flow materially above guidance and Award of new contract and contract extensions, closed back above the long term downtrend ribbon

• +5.4% 29METALS (29M) - High-grade Copper Drilling Results at Capricorn Copper

• +5.0% Insignia Financial (IFL) - Insignia Financial 4Q24 Quarterly Business Update, closed back above the long term downtrend ribbon

• +2.6% Telix Pharmaceuticals (TLX) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

• +2.5% Strike Energy (STX) - NZO: Rig mobilising for Booth well in Perth Basin, TEG: Ventia Rig Mobilising to Booth-1 Well Location, and Becoming a substantial holder

• +2.4% Data#3 (DTL) - No news, rise is consistent with prevailing short and long term uptrends 🔎📈

Trading lower

• -20.9% Droneshield (DRO) - Quarterly Activities/Appendix 4C Cash Flow Report and July 2024 Investor Presentation and

• -12.6% South32 (S32) - Quarterly Report June 2024 and Worsley Alumina Approvals Update

• -9.1% Electro Optic Systems (EOS) - No news, possibly fallout from DRO news 🤔

• -5.1% Nuix (NXL) - No news, closed below short term uptrend ribbon 🤔

• -4.8% Spartan Resources (SPR) - Quarterly Activities/Appendix 5B Cash Flow Report and Award of Underground Exploration Drill Drive Contract

• -4.5% Aussie Broadband (ABB) - Investor and Analyst Briefing Recording, fall is consistent with prevailing short and long term downtrends 🔎📈

• -4.5% Liontown Resources (LTR) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -4.4% Develop Global (DVP) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -4.1% Tyro Payments (TYR) - No news, fall is consistent with prevailing long term downtrend 🔎📈

• -4.1% Arcadium Lithium (LTM) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -4.0% Ebos Group (EBO) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -4.0% Whitehaven Coal (WHC) - Several broker updates including price target cuts and two rating downgrades (See Broker Moves section)

• -3.8% Wildcat Resources (WC8) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -3.6% Iluka Resources (ILU) - Change in substantial holding, fall is consistent with prevailing short and long term downtrends 🔎📈

• -3.3% Pilbara Minerals (PLS) - No news, fall is consistent with prevailing short and long term downtrends 🔎📈

• -3.3% Lotus Resources (LOT) - No news, fall is consistent with prevailing short term downtrend, long term trend is transitioning from down to down 🔎📈

• -3.0% IGO (IGO) - No news, fall is consistent with prevailing short term downtrend, long term trend is transitioning from down to down 🔎📈

Broker Notes

Abacus Group (ABG)

• Downgraded to Neutral from outperform at Macquarie; Price Target: $1.16 from $1.21

Adore Beauty Group (ABY)

• Retained at neutral at UBS; Price Target: $1.05 from $1.30

Actinogen Medical (ACW)

• Upgraded to buy from accumulate at Ord Minnett; Price Target: $1.31 from $1.25

ALS (ALQ)

• Upgraded to buy from neutral at UBS; Price Target: $17.00 from $14.55

ANZ Group (ANZ)

• Downgraded to underweight from neutral at JP Morgan; Price Target: $27.00

Arena Reit. (ARF)

• Downgraded to Neutral from outperform at Macquarie; Price Target: $4.09 from $3.96

Accent Group (AX1)

• Retained at buy at Bell Potter; Price Target: $2.50

Beach Energy (BPT)

• Retained at buy at Bell Potter; Price Target: $1.85 from $1.75

• Retained at sell at Canaccord Genuity; Price Target: $1.50

• Retained at sell at Goldman Sachs; Price Target: $1.52 from $1.50

• Retained at neutral at Jarden; Price Target: $1.55

• Retained at neutral at Macquarie; Price Target: $1.45 from $1.50

• Retained at outperform at RBC Capital Markets; Price Target: $1.75

• Retained at buy at UBS; Price Target: $1.75

Charter Hall Group (CHC)

• Retained to Outperform from at Macquarie; Price Target: $13.67 from $15.54

Centuria Industrial Reit (CIP)

• Downgraded to Neutral from outperform at Macquarie; Price Target: $3.22 from $3.66

Charter Hall Long Wale Reit (CLW)

• Retained to Neutral from at Macquarie; Price Target: $3.33 from $3.62

Centuria Capital Group (CNI)

• Retained to Neutral from at Macquarie; Price Target: $1.60 from $1.70

Cooper Energy (COE)

• Retained at hold at Bell Potter; Price Target: $0.22

Cochlear (COH)

• Upgraded to positive from neutral at E&P; Price Target: $355.00 from $330.00

Coles Group (COL)

• Retained at buy at UBS; Price Target: $18.25

Charter Hall Retail Reit (CQR)

• Retained to Neutral from at Macquarie; Price Target: $3.40 from $3.61

Cygnus Metals (CY5)

• Retained at buy at Shaw and Partners; Price Target: $0.30

Catalyst Metals (CYL)

• Initiated at buy at Canaccord Genuity; Price Target: $2.60

Domino's Pizza Enterprises (DMP)

• Retained at buy at Citi; Price Target: $45.35 from $44.50

• Retained at neutral at UBS; Price Target: $36.50

Dexus Industria Reit. (DXI)

• Retained to Outperform from at Macquarie; Price Target: $3.11 from $3.00

Dexus (DXS)

• Retained to Neutral from at Macquarie; Price Target: $6.51 from $7.38

Evolution Mining (EVN)

• Retained at buy at Citi; Price Target: $4.50

Genesis Minerals (GMD)

• Retained at outperform at Macquarie; Price Target: $2.40 from $2.10

Goodman Group (GMG)

• Downgraded to Neutral from outperform at Macquarie; Price Target: $36.51 from $36.37

Growthpoint Properties Australia (GOZ)

• Downgraded to Neutral from outperform at Macquarie; Price Target: $2.24 from $2.50

GPT Group (GPT)

• Retained to Outperform from at Macquarie; Price Target: $4.70 from $4.61

Healthco Healthcare and Wellness Reit (HCW)

• Retained to Outperform from at Macquarie; Price Target: $1.29 from $1.45

Homeco Daily Needs Reit (HDN)

• Retained to Neutral from at Macquarie; Price Target: $1.14 from $1.26

HMC Capital (HMC)

• Retained to Outperform from at Macquarie; Price Target: $8.37 from $7.97

Lifestyle Communities (LIC)

• Retained at buy at Citi; Price Target: $17.20

Light & Wonder (LNW)

• Initiated at buy at Bell Potter; Price Target: $180.00

Metcash (MTS)

• Retained at buy at UBS; Price Target: $4.00

Mirvac Group (MGR)

• Retained to Outperform from at Macquarie; Price Target: $2.19 from $2.26

Michael Hill International (MHJ)

• Retained at neutral at Citi; Price Target: $0.66

• Retained at neutral at E&P; Price Target: $0.60

• Retained at outperform at Macquarie; Price Target: $0.81 from $0.85

Mineral Resources (MIN)

• Upgraded to add from hold at Morgans; Price Target: $69.00 from $66.00

National Storage Reit (NSR)

• Retained to Neutral from at Macquarie; Price Target: $2.44 from $2.34

Nufarm (NUF)

• Retained at neutral at Citi; Price Target: $4.80

Patriot Battery Metals (PMT)

• Retained at buy at Shaw and Partners; Price Target: $1.80

Qualitas (QAL)

• Retained to Outperform from at Macquarie; Price Target: $3.09 from $2.89

Region Group (RGN)

• Upgraded to Outperform from neutral at Macquarie; Price Target: $2.42 from $2.30

Scentre Group (SCG)

• Retained to Outperform from at Macquarie; Price Target: $3.45 from $3.37

Select Harvests (SHV)

• Retained at hold at Bell Potter; Price Target: $4.40 from $3.75

Southern Cross Electrical Engineering (SXE)

• Initiated at buy at Bell Potter; Price Target: $2.10

Southern Cross Gold (SXG)

• Retained at buy at Shaw and Partners; Price Target: $3.26

Universal Store (UNI)

• Retained at buy at UBS; Price Target: $6.50 from $6.00

Vicinity Centres (VCX)

• Retained to Neutral from at Macquarie; Price Target: $1.87 from $1.92

Whitehaven Coal (WHC)

• Upgraded at buy at Bell Potter; Price Target: $9.90 from $8.90

• Downgraded to neutral from buy at Citi; Price Target: $9.80 from $9.20

• Retained at neutral at E&P; Price Target: $8.00 from $8.10

• Downgraded to neutral from outperform at Macquarie; Price Target: $8.75 from $9.00

• Retained at overweight at Morgan Stanley; Price Target: $9.70 from $9.75

• Retained at buy at UBS; Price Target: $9.40 from $9.65

Woolworths Group (WOW)

• Retained at neutral at UBS; Price Target: $32.50

Scans

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Near Highs

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Relative Strength Index (RSI) Oversold

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