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ASX200: 5650 Has To Hold

Technicals | Nov 19 2018

By Craig Parker, asset manager, Moat Capital

When is a death cross not a death cross? If you look at our markets daily chart you will see the 60-day moving average crossing below the 200-day moving average which is generally a bear market signal. However, you will see back in September 2017 there was a false death cross. When using technical analysis, it is always good to have further supporting signals and the September 2017 cross was after a lengthy sideways consolidation period which isn't a strong bear signal. If you look at the chart recently the cross is supported by large recent movements down with lengthy ranges, in short much higher levels of volatility.

For the ASX 200 in the short term I would suspect a small period of consolidation above the 5650 level before this level of support is tested again. Looking at the monthly chart and the ASX 200 has a little distance to go before the support line in the up-trending channel is hit. A break below this support and this would signal a more serious bear market. Support at this level could be a good buying opportunity. Investors will need to watch this very important trend line closely in the coming weeks and months.

Heading abroad and looking at the S&P 500 you will notice that the price action is looking like consolidating around the converging averages. This could be due to the members of the Fed softening their tone of late which might provide some short-term support. Looking at Oil and it seems the Saudis can do whatever they want and get away with it. The reliance of the West on their Oil has emboldened them to do as they please. The Iranians are in defiance of their oil sanctions, so the projected surplus is hitting demand and the price. The monthly up trend line is about to be hit so I would keep an eye on this in the short term.

The US 10 Year Note has dropped, and the 2 year and 3-month Notes have increased which means the yield curve is heading towards the negative and isn't a great sign for the economy going forward. Perhaps on the local front our next rate movement will be down. Enjoy your week!

ASX200 daily

ASX200 monthly

S&P500 daily

Brent crude monthly

US ten-year yield weekly

US 13-week Treasury bill weekly

Authorised Representative Life Plan FP AFSL 449658

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