Despite the criticism the Reserve Bank of Australia (RBA) has received post the strong GDP and employment numbers for its second rate cut in as many months we feel it was the right decision and one that could not have come at a more critical time for nervous consumers and investors alike.
At an official cash rate of 3.5% the RBA still has plenty of room to cut compared to major developed economies around the world that have already used up their bullets with rates around the 0.25% - 1% mark. The RBA looks to have learned from its mistakes in late 2007 early 2008 when it increased rates three times despite equity markets tanking around the world.
Looking at the technicals on the ASX 200 (XJO) in its own right, there is a growing sense that the Aussie benchmark has found a low in this recent correction. Near term resistance at 4,123 needs to be taken out on the upside in order to confirm a continuation of the recent strength. The daily MACD on the XJO is curling back to the upside suggesting momentum is turning positive and previous supports at 3,974 have held firm.
While these are encouraging developments we believe it is still too early to start chasing stocks indiscriminately. There are still a lot of big announcements to come out over the coming fortnight that can send equity markets back in to a tailspin. Accordingly patience is advised and stock selection is critical to navigate these choppy markets.
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