ASX 200: Critical Week Ahead — Is Selling About to Return? — Stock Market Technical Analysis

[00:00:00] Speaker 1: Welcome to this week's live ASX Strategy Session. Thanks for joining me. Great having you with me for another show and a lot of interesting things to talk about this week with what's going on in the ASX and the US markets and then the commodities, what's happening over there. Any stock codes you'd like me to have a look at, get them ready. We'll go through those in the second half of the show. As always, everything today, general commentary only, doesn't take your personal situation into account. Having been through all that, let's get into this week's first chart. And starting off with the ASX 200. Well, the ASX 200 remains at a critical level. Will it hold or is selling about to return? I'll talk more about this in a moment. And then over in the US, I haven't seen so many cross currents for months. So how risky is it actually getting? I'll talk more about this just after we go through the ASX 200. So let's start with this latest price action that we have here in the ASX 200. The index remains at a critical level, trading right around the moving averages. I think the next move will set the tone for the coming weeks. I think what's been interesting in the last few days was an attempt to break down on Wednesday. You can see this price action on Wednesday. Prices sold off, closed below the moving averages and put themselves in a vulnerable position. But follow-through selling didn't emerge. The next day, we didn't get ongoing selling. Instead, we got a snapback rally that took prices back above the moving averages. And that follows the pattern we've been seeing over the last three weeks in that, like we just go back to the June high. So from the June high, that pattern over the last three weeks has been very much a case of prices sell off and then they rebound. The decline over this whole period has remained choppy and that the selling pressure has been inconsistent. I think that's a sign that I think that's a sign that buyers are patiently absorbing stock that's coming onto the market and supporting price on dips. If we look at the price action from the March low, so here's our March low over here. So there are two strong rally phases. So the first rally was a strong rally into the April high. You can see how quickly the market lifted off. And then the second strong rally phase was into the June high. So we've got the June low, prices rallied into the June high. Both have been followed by the same type of grinding choppy pullback. You can see that first appeared in during around the April, May period and then this following last three weeks. Another one of those choppy grinding pullbacks. I think that indicates that the sensitivity is to the upside. I think that the key near-term levels to keep an eye on, the key near-term levels, we've got the June high and we've got this week's low just beneath where prices are or just beneath the moving averages. So I think they're the two points to keep a close eye on. I think a retest of Wednesday's low, prices that are reversed again, retest Wednesday's low, I think that could see prices then retreat down to the June low. That said, if prices can hold around the moving averages as they currently are, it then opens the way for a move back to the June high and then potentially beyond. It really is, I think it really is a matter of monitoring the price action. That's what it comes down to. It's about monitoring what happens in the price action. Prices remain in a big range. We've spoken about this range a lot over the last few months. That's the range prices have been in for around 10 months. And the thing with ranges are, ranges are often difficult periods of back and forth price action. That's exactly what we've had here. We've had back and forth price action for like 10 months now. But these ranging periods, they all end and trends do return. There's no reason that I see that this should be any different with this current range. Let's jump over. Let me show you what's going on in the financials index, the ASX 200 financials. I think financials are providing a clue to the next move, the next move in the ASX 200. Prices are yet to break above the moving averages. You can see the moving averages, the 50 and the 100-day moving averages. They've been declining. They're starting to flatten out. Prices are yet to get through them, but they continue to butt up against them. Look at the price action over the last couple of weeks. The shallow pullback from the June high. So you can see there's our June high. Really, this has just been a shallow pullback from those moving averages so far. And so that suggests to me that the dip is being bought. We've got a strong rally into the averages, then a shallow pullback from the averages. I think that's encouraging. And then look at how tight the recent consolidation has been as well. It really hasn't been able to move around much at all. When a market coils up like this one currently has, like the index, the financials index, when a market coils up like the financials have, it often provides a platform for the next rally. And so prices often rally out of these tight consolidations. I think that's what's happening here. This is still a range-bound market. But the financials and the range in the financials, it's like it's this period here going back to around October. So it's still a range-bound market. But if financials can get back above the moving averages and then stay there, re-establish above the moving averages, it should help underpin the ASX 200 and then increase the odds of an eventual upside break. Let's see how the financials goes through this week. And then the other part of the ASX I want to look at today is the equal weight, the ASX 200 on an equal weight basis. And I think this is a really good index to keep an eye on. I think a lot hinges on what happens here with where prices are right now. If the ASX 200 is to break out or is to rally off the moving averages, which we just looked at, I think it requires broad participation and the equal weight, the ASX 200 equal weight index, which we're looking at now, is a good guide to the underlying health of the market. So prices have stabilised this week just below the moving averages. The moving averages have also started to flatten out over the last couple of weeks. And that's after mostly being in decline since February. So you go back to February. They've mostly been declining throughout that period. So this is where I think this is where the equal weight really needs to maintain its footing. As it stands, there's an emerging series of rising highs and rising lows off the March low. So here's the March low. And you can see we've got these rising lows in the price action. We've also got a couple of rising highs. So they're the building blocks of an ongoing recovery. The key now, I think the key now is for prices to hold around current levels and then retest this overhead resistance. You can see this blue horizontal takes in some previous lows, a recent high, and then the most recent high. So the key is for prices to hold around current levels and then retest this resistance region around 2,150. I think that for the ASX 200 to break out, it requires the equal weight to reestablish above these moving averages and then get above this resistance region at around 2,150. That's the sort of broad participation that could lead to a new bullish phase. And of course, when I say broad participation with the equal weight, it's because the equal weight ranks stocks equally. From the biggest stock to the 200 stock, they're ranked equally. So to get upward movement and the equal weight, you generally need like broad participation. It can't just be done because CBA has a good day. You need that broad participation across the market. That's why I think it's so important to keep an eye on. But as I say, I think it's important current levels, it's important these current levels hold. Weakness back towards the May low and then the June low, that would really disengage the building momentum that we've been getting off the March low. Just quickly back on the ASX 200, this is where, I think this is where the ASX 200 really needs to prove itself where prices stand at the moment. It's where prices need to hold and it's where buying needs to emerge to underpin prices around the moving averages and get prices up above the averages. I continue to favour this as a corrective pullback. So this last three weeks, I continue to favour that's a corrective pullback. But we've always got to understand that risk remains elevated while we're in these trading ranges. The trading range persists and we can never be sure which way it's going to break. My approach here, it's to maintain exposure to the market, be open to new opportunities when they present, but I'm also holding more cash as well. And I'm doing that until trending conditions return. We don't have trending conditions at the moment. We have a very long established trading range. These long stretches of difficult conditions, they tend to put lots of people off the market. People just go, it's too hard, I'm losing money, I'm not making anything, nothing's working. But remember, it's because we're in a trading range and trends always return. It's all about patience. It's about sticking to a good trading plan. That's what I'm doing. I think that's the best thing we can do right now. This period, this period will end. Okay, so we're going to jump to the US market next. Then we've got the commodities and the small camps and your stocks and everything else. First of all though, if you're getting some value, please click that like button. It helps me heaps when you click the like button because YouTube then registers that people are watching and engaging and YouTube shows other people the free segment of the strategy session. So please do that. It helps me heaps. Just click that while you're thinking about it now and also leave a comment even if it's just thanks for the session or tell me what you think. Are we going to break up or down from the range? It's yeah, it helps me, helps the channel and it's interesting to see what other people are thinking. So okay, over to the S&P 500 next. So there's lots going, there's lots going on in the US market and you don't see it when you just look at the S&P 500 in isolation. I'd describe it as cross currents and I'll go through what I mean by that and show you some of them in a moment. But let's start with the ASX or let's start with the S&P 500. Prices are currently tracking sideways, tracking sideways along the moving averages. There's been a test of the 50-day moving average. Well, that was last Friday followed by a bounce. We saw something similar in the price action earlier in the month. So just over here, just in the first week or two of the month, prices tested the moving average and then that was followed by its own bounce. So that's classic buying of the dip when prices come back to the moving averages and rebound. And we often see this type of price action in bullish markets where we do get prices, as I say, coming back to the averages and then rallying. So far, I describe what we have as a shallow pullback. So there's our all-time high in June. I describe this as a shallow pullback from the all-time high, just back to the moving averages. Prices are currently around 2% below the all-time high. So this is by all accounts, I'd say a modest pullback. So on the surface, the price action we're seeing in the S&P 500 is consistent with an ongoing trend. But while the S&P 500 is tracking sideways below the June high, other segments of the market are making new highs. I'll show you what I mean. So starting with the Dow, looking at what the Dow's been doing. And it closed at a new all-time high on Thursday. So while the S&P has been stuck in a range for the last month, so last month, the S&P 500 has just been stuck in a range, the Dow's been doing something different. The Dow's been rising. It's been hitting new all-time highs. And as I said, hit a new one just on Thursday. And the Dow also has a clear series of higher highs and higher lows. You can just see pretty much since prices crossed the moving averages back in April, series of rising lows and rising highs. So it's a different structure to what we have in the S&P 500. And unlike the S&P 500, the Dow hasn't touched its 50-day moving average. See this red line? That's a 50-day moving average. Hasn't touched it since back in April when it broke above it. So this is a strong, strong ongoing trend in the Dow Jones. So why is this a cross current? It does seem good. And it is positive price action in its own right. Why this is a cross current? It's not that the individual charts of the Dow or the S&P are showing weakness, but rather the strength of the Dow isn't being confirmed by the S&P 500. Let me just quickly put on an overlay and I'll just show you what I mean. So the orange chart is the S&P 500. So this is the divergence. You see, the S&P is not making new highs. The Dow is making new highs. That's what we call divergence. When one index doesn't confirm the new highs in another. And it's not just that the Dow and the S&P 500, if we look at the equal weight, the S&P 500 equal weight, it's also hitting new highs. In fact, it hit a new high on Thursday as well. And I think that's positive. It's positive because it shows broadening participation. It takes more stocks trending higher to make new all-time highs in the equal weight. So the equal weight looks a lot more like the Dow than the S&P 500 index at this point. But then we go to the NASDAQ. And it's a similar but slightly weaker version, the S&P 500. So it's more divergence. It's another market which is, or it's another index, which is not hitting all-time highs. Whereas we've got the Dow, we've got the S&P 500 equal weight hitting those all-time highs. So more divergence. So again, this isn't what we have here in the NASDAQ. It's not a bearish chart as such. Prices are consolidating above rising moving averages. If prices were to break to the top side over the next couple of weeks, well, then it removes the divergence. Then the NASDAQ's hitting new all-time highs as well. So that's the thing with divergence. It can simply go away. But I think the point to understand is it's the, I think it's the inability of the two biggest indices, the S&P 500 and the NASDAQ, it's the inability of these two big indices to rally in line with what we're seeing elsewhere, i.e. with the Dow and the equal weight. So I think that's cause for some caution. It's why the two biggest ones not following suit. The underlying issue seems to be around AI. So while there's been broad market strength, one of the hottest sectors has been under pressure in recent weeks. We discussed the Magnificent Seven, we've discussed them over the last few weeks. It's trading below or just about on the, on the, it's moving averages at the moment. It doesn't look set for new all-time highs in the, in the near term. At the moment, we have a market where the moving averages are declining and price is at best around or slightly below those moving averages. In recent years, the S&P 500 hasn't been able to sustain upward momentum when, when the, when the Magnificent Seven has been, has been below its all-time highs and declining. It, it simply has been a break for the S&P 500. Um, this isn't, isn't making new all-time highs at the moment. And then another part to keep a close eye on, it's a Semiconductors Index. So this is quite extraordinary. So this is the, um, uh, the, the Semiconductors Index in the U.S. Now it makes up about 30% of the NASDAQ. This is one of the most extraordinary rallies you'll ever see. It's doubled in, um, in about three months. So from where things were in March, the, uh, the index has, um, at its recent peak, it doubled, doubled in three months. Extraordinary for such a big index to, to double so quickly. And, uh, and then if we go from the low in April last year, so what, that's about 14, 14, 15 months, it's, um, it's put on 335% to the high thereabouts. So, you know, extraordinary rallies. Semis are still in an uptrend. This is still a, a trending market. Uh, prices above the moving averages, the, the 50 day and the, um, the 100 day moving averages, they continue to trend higher. So that's not bearish. The risk I think is in the speed of the rally and whether the speed of this rally creates instability. I'll show you what I mean. I want to put on one more indicator for you. Now this shows the percentage above or below the moving averages, or it shows a percentage above, or below the 50 day moving average. I'm actually going to change this to a weekly chart, get a better perspective on it. So now the indicator is showing how far above the 50 week moving average the index currently is. So you can see these numbers on the side, that's percentages, that 60%. It was recently 60% above its 50 week moving average, which is, which is quite extraordinary. So let me just compress this. Now this goes back to 1995. So we've got about 30, 30 odd years of price action. We just run a marker across so we can just line up, easily line up the previous, previous extremes. Now semis have only been this stretched, three times in the last 30 years. While anything is possible, it, you know, nothing to say it has, the market has to stop here. Anything's possible, but I think it seems unlikely that this extreme level of elevation above the 50 week moving average will persist. The indicator has already started to turn down, you can see here, the indicator has already started to turn down just in the last, last few days. What I often find is once momentum peaks and, and prices start to, start to, to pull back, what, what I often find is that they then make their way all the way back to the 50 week moving average. So the 50 week moving average is some way below current levels. So if prices were, and this may not happen, it may not happen now, it could happen in, in several weeks or months time, but ultimately prices do come back to the 50 week moving average, whether it be the 50 week be here or whether it's moved higher in time, this gap does, this gap does, this gap does, does close in. And, uh, we've seen something similar in the gold and silver markets in recent months. So I use this, this same indicator on gold and silver. Uh, we spoke about this a lot in November and December in the, in the, in the, in the members section of the strategy session. And, uh, and, uh, and what we found is, and what we have found is gold and silver after being well above their 50 week moving average, being historically stretched on its, um, on its indicator, they have now made their way all the way back. Seemed impossible at the time, but nonetheless, it's happened. I, I, I don't think, I don't think, I don't think semiconductors are going to prove to be an exception. I think they will come back and meet their 50 week moving average again, um, the, the big unknown is what that would mean for the broader market. Can, can the strength we're seeing in the Dow and the S&P 500 equal weight persist if a large component of the NASDAQ stalls? That being these, these, these, these semiconductors. So coming back quickly to the S&P 500, as it stands, this remains, yeah, this remains, this remains an upward trend. I'm long the, um, I'm long the, um, I'm long the, the NASDAQ via an ASX listed ETF. I'm happy to maintain that exposure for now. The price action, be it in the S&P 500 or, or the NASDAQ, it's not, it's not giving me any reason to, to sell at this point. But I think the divergence we're seeing in the indices, I think it's cause for caution. And I think the extreme levels in the semis, in the semi-index is, um, I think it's a vulnerability that we should, that we should monitor. Okay. I'm going to jump over to the small caps now. We'll do the US small caps. We'll do the Aussie small caps. We will do, um, the commodities and any stock codes you'd like me to have a look at. Get them ready. We'll go through them, uh, go through them shortly. But of course, and that wraps up the free section. If you're not a strategy session member, there's a link below, click that, come in, doesn't cost much. And yeah, we go through heaps of stuff. Like I was saying, like talking about like how gold was like stretched back in November, December. A lot of people will be looking at their gold portfolios now thinking maybe that would have been helpful to have known that back then. Strategy session member. Well, that's the sort of stuff we, we look at. So think about doing that. All right. Let's, um, let's jump over to the Russell. Jump over to the Russell 2000. Okay.