Technicals | Mar 03 2020
By Michael Gable
After a horror week in share markets, those who took some off the table early last week are naturally looking for the chance to take advantage of these cheaper levels. In today's report we have a chart of the S&P/ASX 200 Index (XJO) to show you how we think it will all play out. When it is time to buy again, the most important thing to remember is to aim for quality stocks. For example, if CSL is down 10% alongside a bunch of dogs that have also fallen in value, where do you think the smart money is going to head to? It will use this opportunity to finally buy the quality names, not scoop up the stuff that was going backwards when times were good.
In the short term though, there should be a little bounce on the market and that can be a chance to take up a few shorter-term opportunities.
Since the GFC, we have noticed that major corrections in the Australian market tend to see it retrace about 50% – 60% of the previous move. In terms of the rally that commenced at the end of 2018, this current retracement should see support come in between the horizontal blue lines on the chart above. However, the other thing we have noticed is that when the market notches up several days in a row of bloodshed, the first bounce is usually sold into. That is, we get a bounce for about a week but then the selling kicks back in as it is "too soon" for investors to trust the market. That often leads to a pullback again (although more gradual) which could last a month or two. This second pullback can often surpass the previous low point (which would be yesterday's low). By then, ample time has passed for the market to digest everything a bit more rationally and then it can move higher. That is, going off yesterday's price action, we expect a bounce here in the short term, but are aware that we may well see another dip back under 6,200 again before the market is properly ready to head higher in a sustainable way.
Fairmont Equities is a share advisory firm assisting Private Clients with the professional management of their share portfolio. We are based in the Sydney CBD but provide services to private clients across Australia. We believe that the concepts of fundamental analysis and technical analysis of stocks are not mutually exclusive. Regardless of whether you are a trader or long term investor, combining both methods is crucial to success. As a result, the unique analysis of Fairmont Equities is featured regularly in the media such as Sky News Business, CNBC, The Australian Financial Review, and the ASX newsletter. Contact us for a free trial of our research and information on our portfolio management services.
Michael is RG146 Accredited and holds the following formal qualifications:
• Bachelor of Engineering, Hons. (University of Sydney)
• Bachelor of Commerce (University of Sydney)
• Diploma of Mortgage Lending (Finsia)
• Diploma of Financial Services [Financial Planning] (Finsia)
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2
Fairmont Equities Australia (ACN 615 592 802) is a holder of an Australian Financial Services License (No. 494022). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
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