Escalating tensions in the Middle East with a resulting surge in oil prices has buoyed energy producers and the broader Australian market today.
The S&P/ASX 200 Index ended the day up 21.7 points, or 0.29% higher, reaching 7,577.1 — a sixth straight day of gains that has the benchmark index just 60 points from its August 2021 record high.
Energy stocks gained more than 1.9%, as oil prices sustained their gains of the past two months. The higher oil prices come after two separate attacks by Iran-backed militants over the weekend, resulting in the deaths of US troops in Jordan and an attack on a tanker in the Red Sea — heightening concerns around the stability of regional oil supply and the security of global freight transiting through the region.
Brent crude reached US$84.62 a barrel at the onset of trading this morning, while West Texas Intermediate oil edged towards US$79 a barrel. That followed a leap in oil prices of more than 6% last week.
Meanwhile, Tech stocks had a rough session, falling 1.13%, as the weakest sector on the local market today. This mirrors the trend of subpar earnings reports from US technology giants, including Tesla (NASDAQ:TSLA)'s latest financial results that was met with a 13.6% share price drop.
Materials stocks were also lower as BHP (ASX:BHP) lost 1.43% to $46.86, following reports of a Brazilian federal judge's ruling that BHP must pay a 47.6 billion reals ($14.7 billion) fine related to its 2015 tailings dam disaster.
Perfect time for buyers to return?
Dale Gillham, chief analyst at Wealth Within, considers what’s next for the Australian market.
“I mentioned last week that late January could signify the perfect time for buyers to return to the market with reporting season just around the corner, and my timing may well be spot on.
“The All-ordinaries index ended up 1.74% last week and, in doing so, broke a three-week fall, but more importantly, it also broke above the prior week’s high.
"What is interesting is that the buyers began their charge from 7,550 points, which has been a strong level of resistance for the majority of 2023.
"Normally, previous levels of resistance become future levels of support (and vice versa) so given the market has bounced from the 7,550 level, buyers are now eyeing off the all-time high of 7,956.30 points set two years ago in January 2022.
“Furthermore, the market has been buoyed by a strong financial sector, which has outperformed given it is up 3% for the month. Based on the weighting of the financial sector on the All-ordinaries index, I am leaning towards buyers increasing in numbers and pushing prices up above the all-time high over the next 4 to 6 weeks.
“While I remain more bullish about the Australian market this year and would not be surprised to see it trading at 8,300 points and above, if weak reporting numbers come out in this first reporting season of 2024, I would not be surprised if sellers step back into the market to take profit and retest the 7,550 level. Any strong breaks below 7,550 or 7,500 points could indicate further falls down to the 7,000 point level in the near term.”
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