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ASX200: Holding, For Now

Technicals | Nov 26 2018

By Craig Parker, asset manager, Moat Capital

The 5650-level mentioned over the past couple of weeks is holding up for now due to the Banks sector having a mini short-term resurgence. The 5650 level might just hold up if we get an Early Christmas rally and some new year optimism even if it is unfounded and only perception based. 2019 could be a tough year. Especially considering the Debt that the US is piling on and on a local front the recent fall from grace by RCR Tomlinson which could be a sign of tougher conditions to come.

On a technical front one thing I have noticed the past couple of months is the very close correlation of our local ASX 200 market to the S&P 500. The peaks in Mid October and early November are practically identical and the recent bottoms are very closely correlated as well. For now, we seem to be tied to the US market. For us locally the big question now is whether the 5650 level on the ASX 200 the bottom of the correction in a long-term uptrend or is it a period of distribution before a further sell off. I would think it is more the latter as our market still has some longer-term headwinds with higher home debt to income ratios further house price softening and unknown regulatory changes from the Hayne Commission in the short term. Looking at our Financial sector I still think it could reset down a further 5% as a minimum.  If you think of the possible headwinds coming even this next support level should be in danger.

On a more positive note a softening in the rhetoric on rate rises from the US Fed might help the Property Trust sector see some further upside. Our local Property Trust sector has been in a sideways pattern for a while now but is showing signs of strength and a possible upside break through the resistance level in the coming months. It has fared well against equities of late and is sitting just above its 200-day moving average with some RSI bullish divergence. Perhaps it could be the haven it once was compared to equities, at least for a short time frame. Again, to the negative and I would look out for the volatility in the US since this week’s chart has formed a higher low than the previous which can be a sign of the continuation of the uptrend which generally spells downside for US equities. Considering our very close correlation of late this is the major concern and with a further spike up in volatility we could see the 5650 level on the ASX 200 broken leading to a further drop towards the 5400 level.

Sorry to be the bearer of bad signals but the 10 Year Treasury Note minus the 3 months has compressed to 65 in the past couple of weeks down from 90 which is a sharp drop. This trend is worrying. Interesting couple of weeks ahead. Bring on the Santa Rally please. Enjoy your week!

ASX200 daily

ASX200 financials ex-REITs weekly

ASX200 REITs daily

S&P500 daily

S&P500 VIX weekly

Authorised Representative Life Plan FP AFSL 449658

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