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ASX200: Sideways To Up

Technicals | Feb 18 2019

By Craig Parker, asset manager, Moat Capital

So where to from here? I get the feeling we are stuck with nowhere to go. Our Banks have faltered following their short-term reprieve from the Hayne policy fiasco and are now in an ascending triangle with resistance at 6600 (as represented in the Financials chart below). Our ASX 200 is just hovering above the 200-day moving average trying valiantly to consolidate for the next move up. One shining light is the US market is still recovering well with a good move up on Friday night, however the S&P 500 is now nearing a resistance level around 2800. I’m going to hazard a guess that the top of the wall (peak set back in September 2018 around 2940) will be too high to climb.

I did suggest this level was going to be the peak of the bull cycle and I hope I’m wrong but if you look at the S&P 500 Weekly chart on Log scale it is well overdue a decent correction considering the last 20 years has seen two worthy corrections in 2000 and 2008. I suspect over the next 2 years we will see the S&P 500 retract down towards the 2000 level. What does this mean for the ASX 200? If we were to draw a trend line through the weekly LOG chart below you can see that we are slightly below trend. From a technical perspective, we aren’t due for a correction. Naturally markets don’t work like this and we could drop well below this 20-year trend line average however, our market is not due a correction in the vicinity of the US market and hopefully we would be buffered slightly by the fact that we haven’t had the same technical bull recovery that other markets have had.

The key sector to keep an eye is our local Financials as they drive a large part of our overall market or perhaps are more representative of our overall economy. The ascending triangle as mentioned above is generally a bullish pattern but with all analysis methods needs to be taken with a grain of salt. If I had to summarise the short term will see some muddling along in a sideways to upward trend but medium to longer term is not looking great. Locally I’d be waiting for some further buying opportunities on the next move down when the ASX 200 falls below the longer 20-year trend line average. Hopefully some of you acted on my China analysis in the 2nd February report with a nice breakout last week. Enjoy your week!

ASX200 daily

ASX200 weekly

ASX200 financials ex-REITs daily

S&P500 daily

S&P500 weekly

S&P500 weekly log-scale

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