S&P/ASX is now trading below the 10 day moving average. Investors should continue to watch the price action and monitor any pick up in selling pressure.
The S&P/ASX 200 is under Algo Engine sell conditions and the short-term technical indicators now also align. As a reference point, we suggest applying a 10 day moving average and monitoring the market closely, relative to it being above or below the average.
Below the average is a sign of continued weakness.
The S&P/ASX 100 is nearing a break of the upward trending 10 day moving average. We’re using this as a reference for the shorter term momentum to align with the broader index sell signal.
Since writing the above post we are now seeing the XJO trade below the 10 day average.
After sinking to 5624 on October 26th, the XJO index has rebounded over 5% to reach a 3-week high of 5933 on Friday.
As illustrated on the chart below, this retracement looks to have found resistance near the 30-day moving average at 5920.
We consider this technical level an important inflection point in determining the near-term direction of the index.
The next key resistance level will be 5965. However, a break of the 5815 level will suggest a retest of the previous low.
Despite the turmoil on Wall Street this week, we’ve seen home-builders, autos and a handful of other companies deliver positive returns of 5%+.
Money is rotating out of technology, (down 12% this month) and into the over-sold sectors and stocks from the past 9 months.
So where is the bottom in the XJO?
As illustrated in the chart below, the 50% retracement level in the XJO is approximately 5550 points.
Whilst there’s no certainty that buying support will build at this level, history suggests that investors should be watching the short-term momentum indicators closely for an inflection point.
In Monday Morning’s “Opportunities in Review” webinar, we’ll identify the corresponding price levels within the ASX 100’s “biggest and best” companies.
The NASDAQ and Dow Jones Index have further downside before finding their respective 50% retracement levels.
After posting an intra-day low at 6096 on September 10th, The XJO Index has built an initial base near 6100.00
Over the last two weeks, the index has been trading within an ascending wedge formation.
The next level of resistance will be in the 6227 area. A break of the 6096 support will likely triggered a measured move back to the April lows just below 5800.00
The ASX 200 Index finished the week up 0.8%. The best performer was the Utilities sector, up 7.5% and the worst was the Health Care sector, down 1.3%.
5964 provides support for the index and a long bias should remain in place, whilst the index is above this level.
One of the first lessons that we learned working on a dealing desk is that instability in sovereign bond markets can create sudden turmoil across a wide range of financial products.
The reason for this is because the aggregate amount of global bonds outstanding dwarfs the value of all the shares of stock in the world, combined.
Last Tuesday, global financial markets were spun into a frenzy as Italian sovereign bond yields exploded to the upside.
The catalyst for the move was President Mattarella’s rejection of the new government’s candidate for Finance minister, Paolo Savona.
Mr Savona is an outspoken critic of the EU and the Euro currency
As a result, Italian 2-yr bond yields rose from .68% to 2.42% in one day. That’s a rise of 250% in just 24 hours!!
Looking past the political aspect of this week’s events, Italy is well on its way to becoming the next financial basket-case in Europe.
Regardless of who governs Italy, the country will need to re-finance over 350 billion worth of debt maturities and close to 300 billion worth of non-performing loans over the next five years.
We consider the ongoing debt stress in Italy as a potential source of contagion for global equity markets, including the ASX 200 Index.
Italian Sovereign Yields
Our ALGO engine triggered a buy signal on BBOZ at $14.50 on May 3rd. This “higher low” formation is referenced to the low trade of $14.40 on January 10th.
BBOZ is the BetaShare ETF linked to the ASX 200 Stock Index. When the index falls, the price of BBOZ will rise, and vice versa.
We calculate that the price of BBOZ will be near $16.90 when the ASX 200 trades back to the April 3rd low of 5680.
Since reaching a high of 6135 on May 18th, internal momentum indicators have been trending lower for the ASX 200 Index.
For more information about BBOZ and opportunities to trade ETFs, in general, call our office on 1-300-614-002.
BetaShare ETF BBOZ
The S&P/ASX 200 Index finished the week down 0.47%.
The best performer was the Health Care sector, up 2.4% and the the worst performer was the Telecoms sector, down 10.1%.
Telstra Corporation down 11.6% and Vocus Group Ltd down 10.9%.
The XJO index is running into resistance at the prior high of 6150, (reached in January). With resources and the banking sector looking fully valued and the industrial sector trading on stretched price to earnings ratio, we see little upside potential for the index.
Investors should be looking at using a derivative overlay to enhance the income from their existing portfolios.