ASX 200: Are Investors Getting This Market Wrong? — Stock Market Technical Analysis

[00:00:00] Speaker 1: The ASX 200 continues to just hold its ground, but is selling about to return. And then over in the US, some weaknesses appeared in the S&P 500. But the biggest story, the biggest story is what's happening in the broader market. You might be surprised. But before we get to that, let's start with this latest price action in the ASX 200. So I think this is shaping up as a critical week for the ASX 200. While it appears calm on the surface, there's considerable volatility, which is playing out in the broader market. My concern is that the ASX 200 continues to consolidate below declining moving averages. You can see I've got the 50 and the 100-day moving averages on this chart. They're continuing to decline, and we have this consolidation beneath the moving averages. Prices have been grinding higher over the last week. So we come over here to the late September low, and we've got this gradual grind higher. There have been a few attempts for the market to sell off, but it's held its ground. It's continued to grind. But what we're seeing now is it's reached this moving average region, and that's been capping further gains. The ASX 200, well, look, it's been here before and hasn't broken down. For instance, it's been consolidated below declining moving averages in May, didn't break down. Again, over here in November, December last year, consolidation below the averages didn't break down. So it doesn't mean prices are going to break down, but it's a risk factor. I think while prices remain below declining moving averages, the reality is that this is a vulnerable structure. I think last Thursday's low, this low here from last Thursday, I think this is a critical point to monitor. A break below there, well, then that would be a sign of buyers pulling back. And if that were to happen, well, that would then clear the path, I think, for a retest of the October low. And then below there, we've got the March low. That would come into focus. And that marks the lower end or marks the bottom of the trading range. The ASX 200 has been in for the last, oh, look, 13 or 14 or so months. There's this big range we've been in. So if this low from last Thursday breaks, brings in the October low, then brings in the March low, they come into focus should that happen. I think to disengage the current vulnerability, to disengage this vulnerability that we do have at the moment, it's I think we really need to see a break above this week's high. So Tuesday's high, you need to see a break above there and then a strong move back above the moving averages. And then we really need prices to hold above the moving averages. So a strong break above the averages and then holding on to those gains. That would disengage the current vulnerability. I think one of the hardest parts of this market currently is that performance is just so split. It's been a matter of a selection of large cap stocks doing most of the work. So holding this ASX over the last few weeks, it's really been a relatively small number of the large cap. Which have been which have been doing that and making it even harder is that the large caps themselves have been see soaring as well. I'll show you what I mean. Have a look at this. So this is the ASX 200 financials index. So this is where we find the big banks. Now, this sector, this sector was under pressure just two weeks ago, two weeks ago, we're talking about we had this consolidation, a tight range under declining moving averages. It made it made it made it made it made it vulnerable. It was, as I say, under pressure. And now we've got this strong rebound back above the averages back into the middle of the range with good gains on on Friday up to when we're filming it at 1:00 p.m. Eastern Daylight Time. And so this rally that we've had in the last in the last couple of weeks, that disengages the vulnerability and financials are now supporting the ASX 200 instead of where it had been, where it had been a had been a drag coming over to the other main sector is, of course, the materials, the ASX 200 materials, which is where we find the big mining stocks. And now, rather than rallying with the with the financials, these have been selling off and on Friday, we're seeing we're seeing a sharp, sharp turn to the or sharp movement to the to the downside. And so we've got a situation with the mining stocks, and now the biggest drag on the ASX 200. And this has been an ongoing theme for months, the two biggest sectors have they've largely been out of sync ones up, the others down and vice versa. They've been flipping, flipping around. And so this is causing, it's really causing a lot of internal volatility within the ASX 200. And although the ASX 200 itself remains range bound, one thing I'm keeping in mind with this sell off in mining just this week is sharp decline in the mining sector this week. So yes, it's been sharp, it's been a it's been a wolf going back to like the first first week of October. It's been a sharp decline over the last of the last couple of weeks, but keep it in perspective with the previous advance. Don't forget, so we went back to April 25, this index and materials index was up 80% in under a year, then we've had this volatile sideways trading. Now we've got this sell off, which is coming back to the lower end of really the range, the range, which was established early, early this year. So I think it's important to keep that in perspective, I don't see this selling that we're having now, I don't see this as being the start of an ongoing bear market, but rather a correction of a big advance. Coming over to the equal weight, so the ASX 200 on an equal weight basis, which is important to look at because it removes the influence of when you look at just what the big caps are doing, like the biggest cap stock and the smallest of the top 200, they're weighted the same when we look at it on an equal weight basis. Unfortunately, the broader market isn't showing signs of a near term reversal, the equal weight continues to weaken, and it's weakening below declining moving averages. As I said last week, there's nothing here to suggest a low is currently in, at the very least, I think it probably takes time, I think it takes time to build out a base. And that it could include, it could include a retest of this low from over here back in, back in March. I think the weakness and the equal weight points to a more, what I think it's doing, I think it's pointing to a more drawn out consolidation. Like it's really hard, it's really hard to see how we can get a sustained rally in the ASX 200 without broader participation from within the index. And the equal weight is telling us that the broader top 200 is just not ready to rally at this point. Just coming back, just coming back quickly to the ASX 200. This remains an ongoing consolidation. It's been the case, it's been the case for the last 13 or 14 months, this long drawn out ongoing consolidation. It's not a bear market, at least not at this point. This is not a bear market. It's a difficult sideways trading range. As we've discussed in past weeks, I think it's, I think this is a period to, it's been a period to reduce, to reduce risk. And doing that by selling stocks that continue to weaken. So if a stock comes back to its, to its predetermined exit point, well, I'd remove it from my portfolio and move the money into, into cash. But at the same time, I don't want to be abandoning the market and assuming the worse. It's, as I say, this is a long standing trading range, not a drawn out bear market. I've reduced my portfolio size again this week by selling stocks that hit exit levels. And I'm also not buying dips in stocks which are below declining moving averages. I think that's when risk is the highest. My focus, it's been on and it still is on. It's about minimizing losses and, and seeing off what is a very difficult period. The key is to, I think the key is to, is to stay in the game and it's to still be in the game when upward trends do return as they, as they invariably will at some point. But yeah, protecting capital, keeping losses small and yeah, not hanging on the losses in, in this environment. Okay. We're going to move on to the US market next and we'll move on to the local small caps, US small caps, all the commodities, your stock codes. First of all, if you're getting some value, please click that like button. It helps me so much because it sends YouTube a message that you like what I'm doing, you're engaging with what I'm doing. Then YouTube shows other people, so please do that. Click that like button and tell me what you think. Like, do you think, is this going to be, are we heading for a big breakdown in the ASX 200? A lot of people in the comments in past weeks have told me that we are. Do you agree? Is it going to be a big breakdown or is it going to stabilize and, and maybe turn back up at some point in the coming, coming months? And also if you're not a member of the strategy sessions, if you're just watching the free, free, um, segment, which is great. Um, if you're just watching the free segment, click that subscribe button. So YouTube can send you a notification each week. When I do these, these free, um, the free portion of the, the weekly strategy session, YouTube will tell you when it's on and, and keep you, keep you in touch with everything. So click that like button and click the subscribe button. Please helps me heaps. All right. So let's go over next to the S and P 500. Well, what are the odds of this developing into, into a bear market? Like I know a lot of people think the odds are high and the big reasons I keep hearing is all about high valuations. And I keep hearing about a, about a bubble on AI and it's been going on for a while now. Um, I've also seen people making comparisons with the, uh, with the dot com era from back in the, the late nineties, which peaked in, in 2000. And, uh, and people talking about how a similar sort of bust is going to unfold, but are the fears, are the fears supported by the price action? Well, there are some interesting developments this week, and I think there are several things to consider. So firstly, we've got this chart here of the S and P 500. Prices have pulled back slightly this week. So from last Friday strategy session, which didn't of course get, give us Friday in the U S we've had, we had a, we had a, a modest rally through the week. And, uh, and then that was followed by a sharp decline on, on Thursday. So the market came back about 1.2% on Thursday and that'll raise the, the gains for the, um, from earlier in the week. So a 1.2% fall. Well, that often makes a financial use. I've seen it in some of the headlines today about, about a sell off in the, the U S at this stage, it's really, it's just noise within a range and the range I'm referring to. It's this period here, it goes back to early August, which is the last, um, say about the last 10 or 11, 11 weeks. So it really, yeah, it's, it makes some, makes some news, but it's really just noise within that, that range on its, on its own. Markets often spend time in these ranges. The ASX 200, well, we've seen it's been in a range for a long time. The S and P 500, we're really talking about a, about a smaller, a shorter, shorter term range, but these ranges, they're, they're regular features on, on most charts. And while the range itself is neither bullish nor bearish, my bias always goes with the prevailing trend. And, uh, so I think that's the case with this prevailing trend is, gives us a guide to which way, I think the odds favor we get an eventual breakout. So, when a range occurs above rising moving averages, um, again, I've got the 50 and 100 day moving averages. When, when you get a, when you get consolidations above or ranges above rising moving averages, um, as is the case here, that tends to put the balance of probability of an eventual, to an eventual upside, upside break. The S and P 500, it's also, it's only just two and a half percent. It's about two and a half percent below the, the recent all time high. And the thing that we know with all time highs is that all time highs often lead to more all time highs. So from a trend analysis perspective, nothing that we have here indicates that the, the trend has changed. This remains a market within a, within an upward trend. I think the biggest concern is that, I think the biggest concern is the non confirmation of the trend that we're getting from other indices, as well as from this, like this stealth bear market that's been unfolding within the, within the broader market. So case in point is the, the NASDAQ. So coming over to this chart here of the, of the NASDAQ, it's quickly given back all of its, its gains, um, from the recent all time high and all of its gains from the, um, from the, from the, from the mid September low. We had a strong rally off the moving averages, new all time high. It's given all those gains back. It's also dropped below that 100 day moving average for the first time since July. And in doing so, it leaves behind a, um, a break to an all time high, uh, without any follow through buying. Um, the fact that I think the fact that there'd been no, there was no real attempt to buy the dip back from the all time high. Um, I think, you know, look, I think that's, that's, that's, that's a, that's an indication that there's, there's more, more consolidation to come. Often when you get these breaks to all time highs, pullbacks, the pullbacks get supported, you get consolidation. And that, that leads to new all time highs. Not the case here. We've got this, this stronger move back to the hundred day moving, moving average. If this was a genuine breakout and this was a genuine breakout, which was ready to the rally, the, the higher levels and higher levels were, were on the horizon in the near term. I think the dip should have found support above the moving averages. Um, but of course that's not what we have. We've got this moved back down below the hundred day moving average. It's also worth looking at the, the semiconductor index. So this is a, the semiconductors, an index, which, which contains, of course, the semiconductor stocks, which in turn is a big portion of the, um, which is, which is an important part of the, of the NASDAQ. Now it closed on Thursday, um, on its lows, and it looks likely to break below its July low in the near term. There's a July low. It looks on track to break below there, maybe in the next, next, um, next day or two. And, uh, then that could become very interesting. Should we get that, that price action? So should we get another, another dip lower? I think the, the next rebound may, may tell us a lot. So let's just consider a couple of, couple of scenarios. So say prices were to, let's just sketch them in as well. Say prices were to sell off to say like, like 10,000, just getting a, getting a round number. So we get a sell off to 10,000. And then there was a, that was followed by a weak rebound, which couldn't, which can't make up, um, can't claw back many of the losses. The moving averages continue to roll over and then that could leave the, leave a, leave a weak rebound off the low, um, which then in turn could lead to the low. In turn could lead to further unraveling and pressure in the NASDAQ and the S and P 500 and so on. That's a, you know, there's a, there's a bearish scenario, but say something else happens. Say we get a, say we were to get a breakdown to 10,000 and, uh, and then that, that could leave us with the, with a classic, with that classic zigzag sell off sequence. So, you know, another scenario would be if prices were to make a new low and then snap back. And, uh, and then that could leave behind, as I say, that, that zigzag structure. And then that could actually be, um, be, be a bullish, bullish, uh, sign where we do get, start to see strength returning. So a couple of scenarios to, to watch. Um, I think this is a situation where, I think it's a situation where I think the big indices aren't ready to move higher at this point. And further consolidation appears likely in the near term, but further consolidation doesn't mean big falls are coming. Of course they could, but it doesn't, doesn't mean that on their own. I want to show you an important develop in development in the broader market as well. And that's with the equal weight. So this is a S and P 500 equal weight. And I think what's important here is like, look at the, look at the strength in the, uh, in the broader market this week. So the equal weight is up nearly 2% since last Friday's close. So I come back to last Friday's close. We've got about a 2% gain closed on its highs on Thursday. It's also had three consecutive up days above the 50 day moving average. So this being this, this red line, that's the 50 day moving average. Uh, we haven't seen three consecutive up days above the 50 day moving average in, um, in over two months. Not since, um, not since over here, not since over here in, in August. Last week we spoke about the developing, uh, V shape to the recovery in the equal weight. And that's developed further this week. I think that if the market was on the cusp of a larger sell off, I think we'd be seeing weak price action below the moving averages. I think prices would have been stuck below the moving averages. And, um, and, uh, and not, not rebounding in a strong fashion as we're, as we're seeing. One more thing I want to show you. It's, uh, an indicator. I've looked at this indicator a bit over the last, last few weeks. And, um, if you're new to the strategy sessions, if you haven't seen this indicator before, it's showing the percentage of Russell 3000 stocks above their 100 day moving average. So when the indicator is high, most stocks are above their moving average. When the indicator is low, most stocks are below the moving average. And the Russell 3000 of course is a broad measure of the U S U S market. Now, what interests me, what interests me? It's this blue zone. This is a zone we've been, been talking about. And this is where a lot of mild to moderate pullbacks end. And look what it's done this week. It's, it's up again and it's up strongly this week. It's up about 6%. So it's up to around 43%, around 43% of Russell 3000 stocks. And now above their 100 day moving average. That's up from around 31% a few, few weeks ago. So we've got an increasing number of stocks getting back above their 100 day moving average. It's even more pronounced than the S and P 500 stocks. So now about 53% of those above their 100 day moving average. And so this, I think this is, this is interesting. If the market was setting up for a big sell off, I'd expect selling pressure to be capping rallies. But instead this indicator is suggesting support for the broader market. Just coming back to the S and P 500. In my experiencing, in my experience, calling tops is it's difficult. And most people repeatedly get it, get it wrong. I know people are calling for, you know, tops and big declines and such in the, in the market at, at present. So even if the worst fears prove correct. So even if people who are saying valuations are too high, AI bubble, even if they're right, it could, could be months or even years away. These things can play out, but they, they play out on the market's timeframe. And, and it can often take a long while. Consolidation seems likely in the near term. I think we're more likely to see consolidation in the near term. Um, but I think the correct play is to, to keep an open mind to the potential for, for this trend to extend in the common coming months. Um, as always, so it's about managing risk and having an exit plan when conditions change. It's not about having rigid views one way or the other. It's let the price action tell us what it's doing and, and, and responding to that price action accordingly. Okay. Okay. We're going to move over to the, the U S small caps next. We've got the local small caps, very interesting things to look at there. Um, the, the commodities, your stock codes, but of course that wraps up the free section. If you're not a strategy session member, well, there's, um, there's a link below, click that, come on board. Doesn't cost very much. And we go through a whole lot of stuff, which, which could, could help you, help you heaps, particularly in a difficult market. Like we're, like we're currently in. Um, okay, let's, uh, let's jump over. Let's jump over to the, uh, the Russell, the Russell 2000, the U S small caps.