Technicals | Jan 25 2022
By Michael Gable
We have mentioned on a few occasions in the last couple of months that volatility had picked up, markets were looking a little vulnerable, and we need to avoid tech and high P/E stocks. Resources were the only game in town. Price action during the past week in major markets is confirming to us that weakness in now accelerating. If we get a capitulation, then all sectors will be at risk in the short term. Overnight, we saw the S&P 500 Index lose over 4% at one stage, but it then rallied hard to finish in the black. This is the sort of intraday reversal that you get at the lows. However, that is after a capitulation – and I don't believe we have seen a capitulation yet. Once we have, then there will be some great opportunities.
Markets will likely overshoot on the downside as they get too bearish in regard to rates and inflation. Emotional investors will forget that company earnings and global growth are looking very robust, especially once supply chains inevitably free up. If we combine that with the potential of inflationary pressures subsiding and rate rises being pushed out a little, then that would spark a great rebound in many stocks. But not yet. We need to see a lot more pain first. We need to see that the "buy the dip" crowd have given up. For the moment, there will be "bear market rallies" but risk is still to the downside for markets. We will continue to monitor price action across the board while all of this unfolds over the next few weeks or so and be ready to advise when it is time to pile back in with our ears pinned back.
Today's research looks at the major levels on the S&P/ASX 200 Index.
The Australian market has been trading in a range for the last six months, with some clear support around 7200. We gapped under it yesterday, only to rally off the lows. The bulls need to reclaim 7200 pretty quickly here. If so, it would make the recent decline a "false break" and that would set us up for a strong rally. However, the most likely scenario is that the market gets sold on a bounce to 7200. If so, that would set us up for the next leg lower. Support levels are almost meaningless if the market capitulates. But there does appear to be possible support in the mid 6000's, and then the low 6000's as a possible worse-case scenario.
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.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
FNArena is proud about its track record and past achievements: Ten Years On