Technicals | Jul 18 2023
By Michael Gable
This time last week, the S&P/ASX200 Index was sitting just above 7000 and it was all looking a bit ugly.
We noted in last week's report that we could see four possible catalysts to get it moving again: Chinese stimulus, a move lower in the US bond rates, US CPI doing better than expected, and Philip Lowe's speech last Wednesday being a little less hawkish.
We haven't got the Chinese stimulus (yet), but we got the other three. Markets here and in the US have kicked on. Those who are bearish are probably now worried about reporting season, but it has become even clearer that the worst is behind us.
Fund managers have record allocations to cash and bonds, and as it becomes clearer to them finally that the market is not going to collapse, they will need to get invested. Dips will therefore be bought and any drawdowns on the index level for now are likely to be contained to about -5%.
We noted several weeks ago that many commentators and analysts were concerned that the market breadth in the US was very poor. That is, market gains were only being led by a handful of tech stocks. The thinking was that if those stocks faltered, then the market would collapse. Our view was a little different – what if the rest of the stocks started to go up as well? Well, this is what seems to be happening now. Market breadth has been improving.
This week's report has a chart of the US Russell 2000 small cap index to demonstrate why it is just starting to get a move on now, which is great for the S&P 500 Index, and therefore great for our market as well.
Price action is looking very constructive here as the overall trading range starts to tighten up. The Russell 2000 Index is now testing the upper part of that range and looks set to break higher. A weekly close above 2000 would be the confirmation that this index would be getting back into an uptrend.
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Michael Gable is managing Director of Fairmont Equities (www.fairmontequities.com)
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
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Disclaimer
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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