ASX 200 Market Outlook: Santa’s Rally Arrives Early for Materials

It has been a quiet start to the month for the Australian share market, with the ASX 200’s weekly range the smallest in six years at just 0.72%. Volatility may return as December progresses — ideally to the upside if the Santa rally continues to build.

Low index volatility hasn’t stopped materials from surging to fresh record highs. Rising copper prices have pushed the mining index (XMM) to new highs alongside Rio Tinto (RIO), while Fortescue (FMG) extended its rally to reach an 18-month peak, in line with my bullish outlook.

View related analysis:

• ASX 200 Market Outlook: Can Santa’s Rally Help the ASX This December?
• ASX 200 Market Outlook: Healthcare Rebound Mixed for CSL, PME, SHL
• Nasdaq 100 Grinds Higher, AMZN, AMD, TSLA Show Reversal Risks
• ASX 200 Market Outlook: FMG Eyes Breakout, WOW Firms Up

ASX 200 Strengthens as Materials Hit Record Highs

ASX 200 Market Snapshot

• The Australian share market rose for a third straight session on Thursday, though overall volatility remains subdued.
• The 30-day ASX 200 VIX slipped to a 44-day low at 10.6, signalling muted expectations for near-term market swings.
• The ASX 200 closed back above its 200-day EMA and is now testing resistance at the November high of 8649.3.
• Six of the eleven sectors declined, led by Real Estate (XRE) and Consumer Staples (XSJ), while Materials (XMJ) and Financials (XFJ) drove the five advancing sectors.
• The ASX 200 Banks Index (XBK) posted a bullish outside day, though the rebound is still modest when set against November’s 8% decline.

Chart analysis by Matt Simpson - source: ASX, LSEG

ASX 200 Sector Analysis

It is certainly a mixed picture for the local share market.

• Technology (XIJ) continues to lag despite the Nasdaq recovery, forming a shooting star and a potential lower high beneath 2400.
• Consumer staples (XSJ) — typically a defensive sector — is threatening a downside break from its rising corrective channel, which would imply a continuation of the broader downtrend.
• Materials (XMJ) is grinding higher and may extend gains if its strong December seasonality pattern repeats.
• Banks (XBK) posted a bullish outside day, suggesting they’re not ready to roll over just yet. Still, the structure looks corrective, and further weakness remains a reasonable risk scenario.

Chart analysis by Matt Simpson - source: ASX, LSEG

ASX 200 Sector Seasonality for December

I analysed ASX seasonality in a previous post, where I highlighted that December tends to deliver positive returns of around 1.8%, with a 66% win rate, and that gains typically begin to appear in the second half of the month. That said, volatility tended to be lower than in November and April.

Today I am comparing ASX 200 sector performance in December.

• Ten of the 11 ASX sectors tend to deliver average positive returns.
• The materials sector (XMJ) is the standout, with an average return of 2.8%, followed by health care (XHJ) at 1.5% and utilities (XUJ) at 1.4%.
• Only the real estate sector (XRE) has produced negative average returns, at -1% in December.
• The 10 rising sectors also delivered above-average returns when compared with their annual averages.
• Materials also recorded the highest win rate at 76%, followed by consumer staples (XSJ) and health care at 68%, and consumer discretionary at 64%.
• Technology (XIJ) has averaged the highest monthly trading range at 9.9%, although this is below its annual average of 12.3%.
• Energy and materials are the next most volatile sectors, at 9.1% and 8.4% respectively.

Chart analysis by Matt Simpson - source: ASX, LSEG

ASX 200 Futures (SPI 200) Technical Analysis

The –8.1% decline from the record high found support near the 8400 handle and the 38.2% Fibonacci retracement. The subsequent rebound is now stalling, with price consolidating into a potential bull flag. For the moment, SPI 200 futures remain pinned between the 200-day SMA and 200-day EMA, limiting directional conviction.

ASX bulls may look for dips toward 8500 as a buying opportunity in anticipation of a late-December rally. Alternatively, a clean breakout above the flag would imply upside potential toward the September low near 8750.

Chart analysis by Matt Simpson - Source: TradingView, ASX SPI 200 Index Futures

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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