Technicals | Apr 09 2018
By Craig Parker, asset manager, Moat Capital
All eyes on the S&P 500 and the support on the daily chart. With US Volatility now in a confirmed uptrend and with a break down through this support level things could get ugly. Our ASX 200 market is already in a confirmed minor and secondary downtrend and the best we can look to muster is merely a counter trend up before the next likely move lower. Based on the S&P 500 move overnight we are looking for lower sooner rather than later.
Our weekly chart suggests some support around the 5650 level and on the bright side there is ample bullish RSI divergence on the weekly chart which may help hold us up for a little longer. A break down through the 5650 level and we would be in a primary downtrend. As much as the divergence on the RSI indicator is helpful it cannot be used in isolation. If you look back to mid-2015 there was also strong RSI bullish divergence on the weekly chart, yet the market rallied briefly only to fall further to new lows.
Now that the Royal Commission is finding as expected that lenders have been a little too lenient in their lending standards this will have a definite medium to long term effect on markets and, the banking sector which unfortunately makes up a large portion of our market. Please see the Banks Index weekly chart below which has broken down through the 10-year uptrend line. This is very worrying and an early warning signal of a possible shift in longer term momentum. It also hasn’t helped that governments have done nothing over the years to facilitate new industries to help diversify our economy. This will hurt at some point especially if the findings of the Royal Commission suggest policies that will place downward pressure on house prices, moving many homeowners whose LVR’s are above 90% into a negative equity position. They may not default on their repayments, but the real effect of negative equity is unknown. Enjoy the week ahead.
ASX200 daily
ASX200 weekly
ASX300 banks weekly
S&P500 daily
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S&P500 VIX daily
Authorised Representative Sentinel Private Wealth AFSL 344762
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