Technicals | Jun 03 2019
By Craig Parker, asset manager, Moat Capital
Globally the month of May delivered yet again further enhancing the age-old market proverb of go away in May. Locally it wasn’t as bad helped along by political events. Looking at the daily chart of the ASX 200 and it is still looking good with the uptrend intact and even though the chart is resting around the previous peak it could still go down further to the next uptrend line before things get serious. The weekly chart of the ASX 200 is also in an uptrend however the level of bearish divergence on the RSI is significant.
It is going to be interesting this time around to see whether the market reacts positively when the RBA reduces rates or negatively. In the past it has been positive but this time around surely investors will see that if the economy is this weak with rates at 1.5% how is reducing them to 0.50% going to make any difference. Being a swinging voter, I find it amusing that the Liberal conservatives self-proclaimed status as the party for the economy isn’t questioned when, the only thing the economy has been doing since they’ve been in power is going backwards whilst the debt has been going up. Just adding more people to the equation may not cut it this time around. Mining more thermal coal to sell to non-existent customers who no longer want to buy is also not going to cut it. Sorry I couldn’t help myself.
Back to the charts and the monthly chart is showing the same concerning signs as the weekly chart with significant RSI bearish divergence. On a positive note the month of March on the monthly chart did close higher than the previous month meaning a higher peak than the previous and a confirmed up-trend. Our dollar is still heading lower which has helped our market and the chart suggests it is in a serious downtrend with the next key level down being 68. If our dollar breaks below the 68 level, then the next level down is around the 60 level. Clearly this is possible considering the RBA is looking to lower rates.
Worryingly for equity bulls is the move to Gold in the past week. The weekly chart for Gold shows a clear uptrend with support above the 40-week moving average. The Financials sector had the steroid shot with the Liberals getting in but has stalled. The good news is the chart shows the down trend line has been broken to the upside and the price action is holding above the 40-week moving average. Again, I hold the view that over the short term our market is going to do its best to hang on due to lowering rates along with a lower dollar. In the medium to long term reality will hit and we will have a decent correction back around the 6000 level.
See the US Treasury Note 10 Year Minus 3 Month chart which is consolidating in the negative zone meaning, it’s highly likely we will see a recession in the next 12 to 18 months. Enjoy your week!
ASX200 financials ex-REITs weekly
USD gold weekly
US 3-month to ten-year yield spread
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