S&P/ASX is under Algo Engine buy conditions since forming a higher low on 21 September this year.
As PE valuations expand and evidence of earnings growth remains minimal, we see risks increasing for the overall market, both domestic and international equities.
With the above in mind, it’s prudent to tighten the stop loss or market reversal level and the chart below highlights 6630 as support.
ASX200 valuations remain stretched at 20x earnings. The All Industrials Ex-Financials is now trading 30x. Meanwhile, earnings still lack growth.
EPS growth for FY20 is negative 20% and FY21 EPS growth is likely to be flat.
S&P/ASX has run into resistance at 5250 points. Portfolios should be positioned defensively until we see a break back above this level.
The list below highlights the themes we will be focusing on in the coming weeks.
Keep an eye out for our “Opportunities in Review” webinar invitation and feel free to call our office on 1300 614 002 to discuss our preferred strategies in the current market.
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.
XJO Index
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
XJO Index
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.
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