ASX200: May Critical

Technicals | May 06 2019

By Craig Parker, asset manager, Moat Capital

Last week I mentioned that the monthly ASX 200 wasn’t quiet above the peak and if Monday and Tuesday were lower then the month would still be lower than the previous peak or at least not convincingly higher. This did happen and the month of May is going to be crucial in deciding which way this trend is going to go. The daily and weekly charts still look reasonably strong albeit with clear bearish RSI divergence. I assume a lot will depend on the outcome of the election with investors deciding on who they think will be best for markets.

Naturally investors assume the Liberal party however, adding another 300 billion to our national debt (already around $600 billion) in the form of income tax cuts might not be so good for our gross national debt nor our long-term economy. And what about the additional government spending in the form of fiscal stimulus that is going to be required when we have the inevitable recession in the coming 12 to 18 months? It’s a shame this hasn’t been seriously addressed by any political party. The can just gets kicked further down the road yet again. I really feel for my kids.

Enough politics and looking at the S&P 500 overnight which looks like the short-term uptrend has a chance of pushing a little higher. With all the bearish RSI divergence I am hesitant to suggest it has much more in the move before a counter trend lower. I would be looking to increase the sideline cash for now whilst waiting for a greater pull back. A chart to keep an eye on is the US Volatility chart as it is nearing a support level which can mean a bounce in volatility is more likely. If I had to put a timeframe on it, I would estimate within a couple of more weeks.

For the Dow Theorists amongst you the Dow Jones Transportation Index is having more trouble than other US Indices at pushing higher which can be a leading bearish sign. Interesting to see how the share market has Bill and Scott a 50/50 bet with the sideways ranges going on for over a week now. On a positive note for our exporters our dollar is consolidating below the 60day and 200day moving averages. This just might help soften the blow to the downside when it comes. Enjoy the week ahead!

ASX200 daily

ASX200 weekly

ASX200 monthly

Dow Jones Transports weekly

S&P500 VIX daily

AUDUSD daily

Authorised Representative Life Plan FP AFSL 449658

www.moatcapital.com.au

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