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ASX200: Not A Merry Christmas

Technicals | Dec 17 2018

By Craig Parker, asset manager, Moat Capital

Where is the Santa Rally? I am losing hope and after the S&P 500 capitulated overnight it looks like 5400 here we come for our local ASX 200. The ASX 200 did it’s best to try and end the week above the 5650 level I have been mentioning the past month but alas the negative sentiment is building, and the 5650 level even became a resistance level on Friday as can be seen in the daily chart below.

On a positive note has anyone been watching our listed property trust index of late? It has clearly been enjoying the more bearish tone on the interest rate front and has been highly negatively correlated to the ASX 200 having a nice rise the past few months. Gold and Listed Property seem to be back on the risk aversion plate and doing their job very well the past months.

Back to the equity charts and you can clearly see the break down below the 5650 level on the weekly ASX 200 chart with the next support level being around the 5400 level which is coincidentally also the up-trend line on the monthly chart. When looking at a longer-term view using the monthly chart you can see the up-trending channel back in 92 through to 02 and the break below in 02 signaling a 20% correction from its high. I would suspect that if we were to break below the 5400-uptrend line that the 20% correction I have discussed previously is highly on the cards.

The reason I think we could have further to go is the S&P 500. If you look at the chart of the S&P 500, specifically in Log scale you can clearly see that the recent downward movement is minimal when looking historically. It could easily drop another 10% and still not look like capitulation. Capitulation would be down around the 1500 to 1750 levels. In summary a Santa Rally is looking less likely in the coming weeks and we will be moving into the new year looking for some signs of optimism in a time of ever-increasing negative sentiment. We have a while to go on this ride yet. Enjoy your week!

ASX200 daily

ASX200 weekly

ASX200 weekly

ASX200 REITs daily

S&P500 monthly

Authorised Representative Life Plan FP AFSL 449658

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