The best and worst performing stocks of the week

Recently, the Materials sector has seen a significant influx of capital, climbing more than 15% since mid-September, driven by China's latest stimulus measures. Meanwhile, the Financials sector has come under pressure due to global rate cuts, with a domestic cut anticipated soon.

As market capital shifts from Financials to Materials, the question arises: should you consider selling your financial stocks and pivot toward resources?

Before tackling that, let's first explore what's fuelling the surge in the Materials sector. Australia's mining industry is heavily reliant on China, so when Beijing announced stimulus measures to revive its sluggish economy, materials stocks took off.

While the reason for miners' recent gains is clear, could these same rate cuts be driving a sell-off in the Financial sector? Historically, rate cuts don't favour bank stocks. However, it's important to keep things in perspective.

The Financial sector has surged more than 40% since October 2023 without any significant pullbacks. As markets don't rise endlessly without corrections, it's possible that the long-expected pullback in the Financial sector may finally be happening. But the key question remains-when is the right time to sell?

For those holding positions in the big four banks, here's a breakdown of the key levels to watch.

Commonwealth Bank (ASX: CBA): After reaching a new all-time high near $150 in September, CBA has since dropped more than 8%. The stock is hovering around a key support line, and if it fails to hold around $132, watch $120 for the next level of support.

ANZ (ASX: ANZ): ANZ broke out of a consolidation phase in August and is currently sitting near $30. If this level holds, there's potential for a 20% upside as it could make a run back to its all-time high. If it breaks below $30, $28 may offer a strong buying opportunity.

Westpac (ASX: WBC): Westpac has climbed more than 40% this year, peaking around $34. It now appears to be heading toward $30, which could present a good entry point if support holds at that level.

NAB (ASX: NAB): NAB has outperformed CBA recently, surging more than 50% from its June 2023 low. A pullback seems overdue, so keep an eye on the $35 support level. If this fails, the price may drop toward $33 before stabilising.

What are the best and worst-performing sectors this week?

The best-performing sectors include Energy, up more than 4%, followed by Real Estate and Utilities, up more than one and a half per cent.

The worst-performing sectors include Consumer Discretionary, down more than 2%, followed by Consumer Staples, down more than 1% and Financials down just under 1%.

The best-performing stocks in the ASX top 100 include Woodside Energy Group and REA Group, both up more than 6%, followed by Mineral Resources, up more than 5%.

The worst-performing stocks include Qantas, down more than 6%, followed by IDP Education, down more than 5% and Incitec Pivot, down more than 4%.

What's next for the Australian stock market?

Buyers and sellers have been locked in a struggle this week, with the All Ordinaries Index closing on Thursday near Monday's open. This indecision isn't surprising, as the market reached yet another all-time high this week and is in the midst of a four-week rally without significant selling pressure.

Since November 2023, the All Ords hasn't risen for more than four consecutive weeks, making it likely that sellers will step in over the next week or two, triggering a natural pullback. If this pattern repeats, we could see the market initially dip to 8350 points. Should sellers push harder, the next strong support level is around 8150 points.

Beyond the anticipated short-term pullback, what should we expect for the month of October? Historically, October tends to be negative, with data spanning the past 40 years supporting this trend.

Considering the market's current four-week run-up, October looks like it will follow history. However, there's a major factor to watch.

The materials sector is surging, driven by positive news from China regarding stimulus measures.

Many of our key material stocks have skyrocketed, and if this momentum carries through October, the market could climb even higher, possibly reaching 9600 points. Additionally, the Financial sector appears to have found short-term support after its recent retracement. We haven't seen both the Material and Financial sectors rise together this year, but the conditions are in place for that to happen now.

Therefore, if you haven't already, it's worth taking a close look at both financial and material stocks to avoid missing out on the opportunities currently emerging.

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