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ASX200: Caution Required

Technicals | Nov 12 2018

By Craig Parker, asset manager, Moat Capital

Anyone had a look at the FRED* 10 Year Treasury Note minus the 2 Year of late which is nearing recession signal territory? The vertical grey area is recession (US). Take a breather because the 10 Year minus the 3 month is a little way off yet. Even so these charts need to be closely monitored and historically when they enter negative territory a recession has followed in the proceeding 6 to 12 months. The significance for the share market is that the volatility generally begins long before that.

Look at our local ASX 200 market and you will notice on the daily chart below, the 60- and 200-day moving averages have converged. I would be looking for our market to close in on these two averages only to find resistance and possibly the next wave down. Hopefully we can hold above the 5650-support mentioned last week however, I doubt this will hold. Once volatility enters the market support and resistance levels rarely hold up. The next move down could see the ASX 200 hit the 5500 level which is around the support line on the up trending weekly channel.

Our Financial sector which can dictate the overall market due to its weighting has had a good counter trend up although I wouldn’t expect it to go much further as it is nearing possible resistance of the 60-day moving average. On a slightly positive note for our materials sector the price of Iron Ore has done well of late although I say slightly positive because it is now nearing a resistance level and the RSI is way overbought and due for a correction. Caution should reign, and I would expect to see investors using this recent short-term recovery as an opportunity to sell and recover some of their recent losses only to fuel the next sell off. Enjoy your week!

* Economic database of the US Federal Reserve

ASX200 daily

ASX200 weekly

ASX200 financials ex-REITs daily

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