ASX 200: Is the Market Hiding Something? — Stock Market Technical Analysis

[00:00:00] Speaker 1: The ASX200 continues to defy the bears, but can it hold on for much longer? And then over in the US, will the S&P 500 be the last domino to fall, or is it going to be the leader that pulls everything else higher? But before we get to that, let's start with this latest price action in the ASX200. Well, the index has survived another week without the big sell-off that a lot of people have been expecting. The ASX200, well, it's now had three attempts to sell-off that haven't attracted follow-through selling. Now, we spoke about the first two last week. There was one here from the start of October, one here from just over a week ago, and neither of those attracted that follow-through selling. And then there was another attempt on Thursday this week to send the market lower. But again, rather than follow-through selling, and follow-through sellings where you get the first bout of selling, you get a bit of a rebound, and then you get another leg down, rather than get that follow-through selling, there's been a snapback rally. So that indicates strong buying of the dips, as was the case last week and in the week prior to that. But how sustainable is this? I think the key lies with what happens below these moving averages. I've got the 50 and the 100-day moving averages on this chart. The rebounds, yes, the rebounds are encouraging, but they only take prices back to the underside of this moving average region. And just like there hasn't been follow-through selling, there also hasn't been follow-through buying. So we've had these up moves, we've had the consolidations, but we haven't had that follow-through buying either. So essentially, we've got a bit of a tug-of-war going on between the buyers and the sellers. Buyers are stepping in on the weakness. We've got these weekdays, the buyers step in, support prices, push prices back up. But then the sellers are coming through on their snapback rallies. We get the snapback rallies and the sellers are waiting there, pushing prices back down. So that's why I say you've got that tug-of-war going on. The reality is that this remains a vulnerable structure while prices are below these declining moving averages. The risk is that prices once again stall. The risk is they once again stall around this moving average region and start to come back. I think Thursday's low. I think the low from yesterday, Thursday this week, I think that low is now that critical line in the sand. I think a break below there would be a sign of buyers pulling back. And if that happens, well, then that clears the way for a retest of the October low. And below there, well, then this low over here in March comes into focus, which also happens to be at the bottom of the ASX 200's one-year range. So just popping that on the chart. This is the range prices have been locked within for the last, well, it's over 12 months now. It's probably around 13 or so months. There's been these long-standing range whipping either side of the moving averages. And, yeah, look, I think if the October low were to break, that's what comes into focus, the March low, which is at the bottom of the range. I think to disengage this present vulnerability, I think we really need to see prices back above, back above these moving averages. And then once above the moving averages, prices would then need to re-establish, need to re-establish, hold on their gains, spend some time above the moving averages. That then really starts to disengage that vulnerability. Another vulnerability for the ASX 200 is that its relative stability, like this stability that we're seeing, like it has been relatively stable over the last month or so. And that's largely due to just a few stocks. It's a few stocks like the BHPs, the CBAs and the like, which have been supporting the market. Have a look at this. This is interesting when you look at the market on an equal weighted basis. So, again, the ASX 200, but this time equally weighted. So, the biggest stocks and the smaller stocks within the index have the same weighting. And when we do this, the equal weight has been selling off during the week. It fell about 3.3% in just three days. So, look at this. These three days here, market was down about 3.3%. So, a lot more than we saw in the ASX 200. So, there's been more pronounced weakness across the broader market than what we're seeing in the index alone. And this is especially so when we then go to the mid-caps and the small-cap stocks, which I'm going to cover a little bit later on. And this is what can happen when prices consolidate below declining moving averages. We've been discussing the weakness in this structure over the last few weeks, how we've had these weak rebounds off lows and more selling, weak rebounds and consolidations below declining moving averages. We've discussed this weakness in the structure in recent weeks. And I think this remains a significant risk factor for the ASX 200. And there's nothing here with what we're seeing at the moment, these low from yesterday, low from Thursday and the equal weight, there's nothing here to suggest that, well, that is the low. At the very least, I think it probably takes time. I think it probably takes time for the equal weight to build a base. And that could also include a retest of Thursday's low. And I think this is an issue for the ASX 200. It's hard to see how the ASX 200 can have a sustained rally without broader participation from in the index. And when we look at this equal weight, well, we can see, well, it's not getting that broad participation at the moment. This index has and is still selling off. Don't get me wrong. I'm not suggesting a long-lasting bear market. I don't think that's the most likely scenario. But it does appear that a more drawn-out consolidation is probably playing out. On the positive side of all this, we want to have a look at the financials index because this has been one of the key concerns for the market, what's been happening here. The significance with the latest price action is that prices are now back above the moving averages. It's not by much. It's only just a day or two, but what it does, it disengages the vulnerability from this tight consolidation that was going on below the moving averages. The risk was that this tight-coiled structure that we had below the averages broke to the downside and then sparked a sell-off in the ASX 200. I think the risk of that sharp move lower is now much less likely in the near term with prices now back above the moving averages. Financials aren't out of the woods by any stretch, but they're no longer in that highly vulnerable position that they were when they were coiled up below the moving averages. This is a type of setup which can lead to those sharp moves lower. So thankfully that hasn't happened. We've got that rebound back above the averages. As I say, it disengages that near-term vulnerability. Just back on the ASX 200, this is one of the, I think this is one of the hardest situations in that I think the fear for many people is that prices are about to break lower and have a serious breakdown and fall out of their range. But I think the more likely scenario is that this is an ongoing consolidation. It's been going on for over a year. I think it's an ongoing consolidation that has further to run. I've reduced my portfolio size by selling stocks that hit exit levels. So selling stocks come back and trigger what I use, a wide trailing stock. But if a stock doesn't give me a reason to sell, I don't. I give it room to move and if it stays within reasonable parameters, I continue to hold it. I'm also managing risk by not buying dips when stocks or indices are below moving averages, particularly these declining moving averages. That's when I think risk is at its highest. It goes without saying that this is a difficult period. There's no two ways about it. For me, the focus is on minimising losses and staying in the game. That's what we've got to do to be long-term stock market players and investors, minimising losses, staying in the game. And then that provides my platform for when good conditions invariably do return. We don't know when that will be, but we do know that they do come around again. Have that capital in place, keep the losses small and be ready to move when the price action tells us. But I think we've got a bit of time up our sleeve before that occurs. Okay, we're going to move to the US market next. First of all, though, if you're getting some value, please click that like button. It helps me heaps and heaps if you do that because YouTube gets the message that what I'm doing adds value. So it shows other people. And if you just come across this and you're watching the free video on YouTube, there's a subscribe button. Click that and YouTube will send you notifications when I do these weekly strategy sessions. So like, subscribe, they're two things you can really do to help me. And also tell me what you think. Like are we heading for like a big breakdown? I know a lot of people think we are. Or do you think the market's going to hold together or maybe even rally? Tell me what you think in the comments section. Okay, let's move to the US market next. S&P 500. So this could be the most deceptive chart in global markets. On the surface, it looks like, this just looks like such an orderly and uneventful consolidation above rising moving averages. As always, I've got the 50-day and the 100-day moving averages. And there's absolutely nothing bearish about that structure. It's also just 1.5%. So look where prices closed on Thursday. In Thursday, they closed just 1.2% below their all-time high from just a few days ago. And as history shows us over and over again, all-time highs tend to lead to more all-time highs. So again, that's not bearish. And when we look at the latest price action on Thursday, just looking at this low on Thursday, prices traded to their low, and then there was a strong rally off the 50-day moving average and then closing near the high for the day. So in a bull market, that's where the dips are often bought. The dips are often bought around this 50-day moving average. So once again, that's not a bearish signal. But what we don't see here, what we don't see in this chart, is that a bit over one-third of S&P 500 stocks are actually down by 20% or more. So the chart hides what's really been like a stealth bear market that's been going on below the surface. So the question is, does the index, does the S&P 500 index, realign with the broader market? Or does the broader market realign with the S&P 500 index? I think the equal weight index gives us a clue. Let's have a look at the S&P 500 on an equal weight basis. And what's interesting here is that there's been a noticeable shift in the price action just over the last couple of weeks. It's gone from, and like, look at how it's occurred. It's gone from having these periods of like sharp sell-offs and then weak rebounds, sharp sell-offs and weak rebounds. And the situation's now reversed. We're now getting strong, strong rallies and shallow pullbacks. So the intent appears to have swung from selling to now buying. Prices are also back above their 50-day moving average for the first time in six weeks. So just on Thursday, they've now closed above their 50-day moving average. Last time that occurred, it was back in the, just in the early stages of September. Also look at the symmetry. Look at the symmetry between the final stages of the decline and then the rally over the last couple of weeks. It's got that familiar V-shape to it. It's, I can just see, there's that V-shape in the price action. It's not dissimilar. It's not dissimilar to the early stages of the turnaround that we saw in March. There's still a lot of work to do here. This is by no means off and away by any stretch. So there's still a lot of work to do. Prices need to reestablish above the moving averages and as a first step. But I think it increases the odds that this has been a moderate pullback, that this has been a moderate pullback in an ongoing upward trend. I want to show you an indicator. Now we've looked at this indicator a bit in recent times. So this is a percentage of Russell 3000 stocks above their 100-day moving average. So when the index is high, most stocks are above their 100-day moving average. When it's low, most stocks are below their 100-day moving average. If you're new to the strategy sessions, it's this blue zone. It's this blue zone which interests me most. This is where a lot of mild to moderate pullbacks actually end. And you can go back to previous sessions for a more detailed explanation. But like you can see, a lot of these mild to moderate pullbacks finish in the zone. Now look at the... Now we've been looking at this. This is the Russell 3000 stock. So Russell 3000 is a broad measure of the US market. And you can see from just the last week, the indicator has moved higher this week. So it's showing those potential signs of bottoming. Not dissimilar to, again, what we saw in March. I want to show you something else this week. I want to now apply this same indicator to S&P 500 stocks as opposed to the Russell 3000 stocks, which is a larger group of stocks. Let me flip this indicator over. It's still the percentage of stocks above their 100-day moving average, but now it only applies to the S&P 500 stocks. So here we go. Clicking it over and have a look at this. Look at the strength of the rebound, particularly this week, how that's moved up from below 40% to now 47% of S&P 500 stocks above their 100-day moving average. That's a big improvement in just a few days. And it supports the strength of the recovery we spoke about a few moments ago with the equal weight. So I think this lays the framework for not abandoning the market at this point. Having said that, it's not a green light for being excessively bullish either. This is still such a highly divided market and I think risk is still elevated. A case in point is when we look at the NASDAQ. So coming over to the NASDAQ. Now, while the equal weight is showing signs of recovery, we saw that nice rally over the last couple of weeks in the equal weight, the NASDAQ has fallen back into its moving average region. And in doing so, it's given back a big portion of its recent gain. So we had a nice rally off the moving average region in mid-September, made new all-time highs and now it's quickly given that back. If this was a genuine break higher, if this rally from mid-September was a genuine break higher, the dip should have been bought. Ordinarily, that's what I'd expect. You expect the dip to come back, to find buying interest, find support and then make a series of new highs. That hasn't happened. Instead, we've got this quick pullback back to the 100-day moving average. It did bounce on Thursday off the 100-day, but nonetheless, that's not the sort of quick decline I would have expected. I think that... So it really is like... And this is the difficulty we currently have. The S&P 500 is giving us cause to stay in the market. When you come back, let's go over to the S&P 500. I think when you look at this, the S&P 500 is giving us cause to stay in the market. It remains above rising moving averages and continues to act like an index in an uptrend. But that's balanced by the broader market fragility and what we're seeing in the NASDAQ, with the NASDAQ failing to hold onto its gains. So I think that's a classic cautionary sign. I think the easy play here is to step aside until everything comes into line. But my experience with the easy play is the easy plays often aren't the right plays. I know there's a lot of negativity around the market at the moment and much of it seems to be well-founded. But here's the thing, though. What we think should happen is sometimes very different to what does happen. I think there's enough here when we look at this chart structure of the S&P 500, I think there's enough here to keep an open mind to the upside. But an open mind doesn't mean being blindly bullish. It means preparing for the possibilities. So for me, that means maintaining exposure to the uptrend until the price action indicates otherwise. At the moment, it's indicating we still have an uptrend. It also means being aware of the risk, being aware of what we spoke about with the NASDAQ not confirming. And we have had underlying weakness in the broader market. Being aware of the risk, having a plan to cut losses early. I think that now's the time for being conservative, but saying that, not being frightened to the sideline. Okay, we're going to go and do the US small caps now. We've got the Aussie small caps. We've got all the commodities to go through, so there's plenty to have a look at there. And then any stock codes you want, we're going to go through them as well. If you're not a strategy session member, that's the end of the free section though. So there's a link below. Click that, come on board. Doesn't cost very much. And we go through so much more stuff, which hopefully would help you a lot with managing your own portfolio. Okay, so let's start. Let's start by going over to the Russell 2000, which is the US small caps.