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ASX200: Reaching A Peak

Technicals | Jun 24 2019

By Craig Parker, asset manager, Moat Capital

How far can the ASX 200 go? To get your answer I think we need to go further afield.

A couple of key charts to look at are the [US small cap] Russell 2000 index as represented by the iShares ETF below. If you look at the weekly chart it is hugging the 40-week moving average with a greater proportion on the Bearish side of the average and being in a short term down trend which is looking like an ever emerging medium to long term down trend. If you look at the daily chart of the Russell 2000 it is turning over and forming a peak which isn’t great news at all. The other key chart internationally is the Dow Jones Transportation Index which on the weekly chart is forming a Head and Shoulders pattern in a medium term down trend with a descending neckline and shoulder line. Very negative from a technical perspective.

On the local front we are closing in on our all time high. Unfortunately, I don’t think we will be able to motor on past that high like most other international markets have done some years ago. Another rate cut might get us close but that will be it. You’ll notice on the ASX 200 monthly chart our all-time high is coincidentally around the resistance line on the up-trending channel where the upward move is likely to lose steam. My feeling is we are around the peak of the recent long-term bull run and heading towards the cliff edge. Once rates in the US start dropping and the reality of why has set in then, we are looking at some serious downside.

Locally we’ll be heading back around the 5800 level over the next 12 to 18 months. Another pessimistic indicator is the weekly chart on Gold below smashing through the strong resistance level of 1350 and rocketing up towards 1400. Investors are becoming very risk averse. One shining light is China and the Shanghai Composite gaining support around the 40-week moving average in a confirmed medium term up trend. It will be interesting if Trump can put a dampener on this in the coming weeks. Enjoy your week!

ASX200 daily

ASX200 weekly

ASX200 monthly

Dow Transports weekly

Russell 2000 ETF weekly

Russell 2000 ETF daily

Shanghai Composite weekly

USD gold weekly

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