ASX200: Short Term Optimism

Technicals | May 20 2019

By Craig Parker, asset manager, Moat Capital

Giddy up the Banks! I am interested to see how the Banks will open on Monday and then how long before the reality sets in. I predicted a narrow Liberal victory some time ago however this could be unfortunate for the Liberals future or fortunate if you are a Labor voter because if the Labor party has anyone with any level of tenacity they will be able to tear their self-declared economic credentials apart. If the budget they said would be a surplus becomes a deficit, if the national debt continues to rise and the country goes into a recession, which is predicted, then the Labor party will be loaded with ammunition. It will be an interesting 3 years. Very relieved to not have to listen to any more political advertising.

Moving onto the ASX 200 chart and you would expect to see some further consolidation above the 6350 level, led by a jump in the Financials sector. If you look at the Financials weekly chart below, you’ll see it is in a clear downtrend (falsely expecting a Labor victory) and come Monday it will be interesting to see if the move can be enough to change the momentum. For the medium term down trend to be broken it must at least break up through the downtrend line illustrated. It might take a couple of weeks for that to happen. Another positive for our local market and the Materials sector is the fact that our dollar is in free fall now heading for the recent low of 68 reached back in January 2016. You can see on the Materials chart below how positive it has been with a bullish week. Looks like a good week coming up in our market.

Now I hate to burst the shorter-term bubble but the technical indicators on the S&P500 are weakening as the China Trade War continues with the S&P 500 daily looking uneasy around the 60-day moving average. A drop below the 2800 support level and the gloves are off with the next level of support around 10% lower. The next 6 months aren’t setting up to be pretty for equities. The only question is how this is going to affect us locally. Considering we are unequivocally tied to China the result may not be great. Enjoy your week and the short-term optimism.

ASX200 daily

ASX200 financials ex-REITs weekly

ASX200 materials weekly

S&P500 daily

AUDUSD weekly

Authorised Representative Life Plan FP AFSL 449658

www.moatcapital.com.au

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