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ASX200: 5400 In Sights

Technicals | Dec 10 2018

By Craig Parker, asset manager, Moat Capital

Once again, we saw a week where the 5650 level was challenged with both Wednesday and Thursday teasing with a drop below only for the market to claw its way back later in the session. Considering the decent move down overnight in the S&P 500 Monday is most likely the day we will close below the 5650 level which could be the beginning of the advance towards the next level around 5400. Even though the daily, weekly and monthly charts are highlighting some clear bullish RSI divergence I don’t believe this will be enough to hold us above the 5650 level.

The good thing is we have the weekend for investors to calm their nerves which will help with lessening the blow come Monday and if we get around the 5400 level this would be a good buying opportunity. In the medium term the concern is the S&P 500 is consolidating its position below both the 60 day and 200 day moving averages which is in stark contrast to the previous period of instability which ran from February through to April 2018 where it at least held above the 60-day moving average. Another concern is the US risk barometer being the Volatility Index which is coming up against a resistance level and I have a feeling that this is not going to hold with a break through this level volatility could rise towards the 50 level as it did back in February. This would be bruising for the market and a 20% correction on the S&P 500 from the high back in September is likely.  

Considering we have been following the US market of late that’s not great news for our local market. Also, you can see from the Gold price there is a growing sense of a need for flight to safety with Gold entering a short to medium term uptrend with consecutive higher lows and higher highs coupled with a break through and consolidation above the 60-day moving average. Another scary indicator (longer term) which has only strengthened again this week is the yield curve with the difference between the 10 Year Treasury Note and the 3 Month Note narrowing to 46 which is a further drop of 20 points in the space of a week. It is getting close to negative territory which based on historical reactions means a recession within 6 to 12 months thereafter. For those who go by the 10 Year and 2 Year Note it is only 13 points away from negative territory. On a local political scene this is bad news for the Labor party if they get in at the next election as they will inevitably be blamed for the recession, they inherit and good news for the Liberal party as they can use it to keep Labor to a one term government. An interesting time ahead. Enjoy your week!

ASX200 daily

ASX200 weekly

ASX200 monthly

S&P500 daily

USD gold daily

S&P500 VIX daily

US three-month to ten-year yield

Authorised Representative Life Plan FP AFSL 449658

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