Technicals | Oct 24 2023
By Michael Gable
A lot can happen in a week, or in three days. We had a market that was bouncing off support and was looking like heading higher, but the past few days has seen it back to where we were a few weeks ago.
Our recent buy signal has unfortunately been negated but we still remain of the view that markets are at levels where you need to be looking for reasons to buy, not reasons to sell. Today's report has an updated chart on the S&P/ASX 200 index (XJO).
The major driver of stock market weakness has been the fixation on rising bond yields. However, as we have been saying for a number of weeks now, when you get a vertical move higher in any asset, they might go on a little longer than you expect, but they all end the same way – they fall just as fast as they go up.
Vertical moves don't consolidate sideways to stay "higher for longer". Overnight, we had news of prominent US hedge fund manager Bill Ackman closing off his bond shorts. That is, if the downside is mostly done for bonds, then so is the upside in yields.
Sure, we have a war in the Middle East to worry about, but that has never stopped a share market from heading higher. The war has kept gold prices firm, but the real move in gold will be when yields and the US dollar start to retreat.
We looked at the XJO earlier this month and noted the oversold nature of it (RSI circled) and the bounce off those levels gave us a positive view on the index.
The set-up was similar to what we saw in March. Unfortunately, it has dropped back to these levels in the past few days and negated our buy signal.
What is interesting, however, is to see the index make a slightly new low yesterday while the RSI has not. This bullish divergence suggests that the downside is unlikely to get away from us and the market just needed a bit more time to establish a low.
We are on the look-out for a clear reversal sign in order to turn positive again. Failing that, the next level of support is near 6700.
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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