Technicals | Sep 24 2018
By Craig Parker, asset manager, Moat Capital
The 6150-level held up last week with the US market heading higher as well. Some are asking is this the last push up before the S&P 500 has a fall. The S&P 500 is getting close to going up 4-fold in 10 years and it is prudent to note that the longer the rally goes on the higher the risk. If you went by Warren Buffet's motto of being greedy when others are fearful and went in at the peak of the GFC crisis when the S&P 500 was around the 800 level, you are looking very rosy right now and would be wise to take some profits and head his other motto of being fearful when others are greedy.
Even so the market could have further to go yet with the Yield curve (See FRED chart at bottom) at least a year or two away from going into the negative. Even then as a leading indicator it can be another 12 months to 2 years before a recession. Prior to this I would envisage some market volatility and at least a 20% correction in the S&P 500 sometime in the next year or two. This isn't a big call considering these corrections happen every 3 to 5 years.
What does this mean for our market (ASX 200) which still has some ground to make up to get back to pre-GFC highs? Looking at our longer-term chart (monthly) you can see that we still have some clear sky to the upper resistance of the up-trending channel. Hopefully we can get there in the next 6 to 12 months so that if we do have the 20% correction then we would be back at the support levels of the channel. Because we still have some serious catch up to do compared to international market rallies (we aren't even up 2-fold compared to the US almost 4-fold since GFC bottom) I wouldn't envisage us having as big a fall. In the short term we are still sandwiched between the key 60- and 200-day moving averages with the 60-day moving average flatlining.
The monthly ASX 200 and S&P 500 charts have some serious bearish RSI divergence which is a reason to be cautious – more so the S&P 500 as it currently has a higher price action peak and we are coming off a counter trend. The big news for this week was the 10 Year Treasury Note breaking through the 3 barrier, with ease and is now testing the previous high of 3.10. Keep an eye on this one! Enjoy your week!
ASX200 daily
ASX200 monthly
S&P500 monthly
US ten-year yield daily
US yield curve (3mth-10yr spread)
Authorised Representative Life Plan FP AFSL 449658
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