ASX 200 About to STALL | Episode 62

By Jason McIntosh | Published 19 August 2022

Trade the Trend is a weekly video focusing on where the stock market is going. It’s for investors and traders looking for technical analysis of the ASX shares, the ASX200, the SP500, as well as stock markets and commodities markets in general. Jason uses technical analysis of stocks and trend following techniques to help you piece together the world’s biggest puzzle.

Where is the Stock Market Going?

00:00 Intro

00:32 Will the ASX 200’s rally stall this week?

02:19 This often happens after prices cross above the moving average

03:55 Small Ordinaries up 19%. What next?

04:52 Keep an eye on this ASX sector (plus an ETF to trade it)

07:28 Check out this podcast that I was recently on

08:04 What sort of stocks would I look at buying now?

10:00 And this is the sort of stock I’m avoiding

Transcript (abridged)

Please note: Charts available from video

We’ve got the ASX 200 on the screen. And it’s been a pretty quiet week. We just look at what’s gone over the last few days. Had a little bit of a kick-up on Monday but otherwise, it’s really been not much going on. And the key feature on this chart remains this resistance, this overhead resistance band between 7100 and 7200. You can see it goes all the way back over here to the 2020 high. So, it’s quite a significant region that the market’s butting itself up to at the moment. And it really is keeping a cap on the price.

Let’s go to the four hourly chart. Just get a little bit more detail on what’s going on. And I just want to focus in on the latest price action just over the last couple of weeks through here. Because what you can see, well, on the positive side, we do have higher highs and higher lows as we go through there. So, that’s positive, and it’s entirely possible that this market, from here, that it does accelerate upwards, pops above that resistance area. That could entirely happen. But what I don’t like so much about this price action is that it is fairly overlapping. It’s not impulsive. So, this was quite impulsive through this section here. This is not so much. This is overlapped. It looks like price action which is struggling. And potentially the reason for that is because of this big overhead resistance band.

And if I just jump back to the daily chart. I’m also keeping an eye on these moving averages. So, if you saw my S&P 500 edition, I spoke about a similar development we’ve gotten in that quite often you find when you’ve got the moving averages trending down, they start to turn higher, the share price breaks above, has a bit of a run above. Often, it will come back and retest those moving averages.

Just to show you a couple of quick examples of how that’s happened on the ASX 200. You can see down here during the COVID recovery we had that initial run above the 50-day moving average and the price came back and retested it. We can go along a little bit further and we see something similar happening back down here in 2019. We had the break above the moving averages then it came back and it went sideways for a few weeks. It’s different every time but it’s the same pattern. You do get this move above the moving averages, then you tend to get some consolidation.

So, we’re going to see how this one plays out. But I think with this resistance band capping prices at the moment, the longer this goes on, the more likely I think that we do come back and we do retest these moving averages. So, for that reason, I don’t want to be adding a whole lot of exposure up at current levels. I’d rather wait and see what happens. Either we’re going to get a clear break or we’re going to get some pullback. And if we get a pullback, we can reassess based on what that pullback looks like.

Quickly jumping to the ASX Small Ordinaries and we’ve got a similar situation. We’ve got a market that’s reached its overhead resistance. For the case of the Small Ordinaries, resistance is at 3080 to 3120. And I’m also aware that we’re 19% off the low. So, that’s a pretty good run for…I think that’s probably around a six-week period. We could well and truly see a retest of the moving averages, and they’re not that far below either. So, a pullback into this moving average range would still keep the recovery prospects of this market well and truly alive. It would also make it healthier in that it goes sideways a bit, it consolidates, and then potentially pushes higher again, potentially gets above that resistance. That’s the price action I’d like to see start to develop. So, yeah, keeping an eye on this for now.

Something interesting I wanted to show you, it’s the ASX All Technology Index. It’s not one I often talk at. Often talk about the NASDAQ for the tech-related stuff. But this is an interesting one because the price action is quite constructive. Series of higher highs and higher lows coming off this low point from June. Also like that we’re above the moving averages, the moving averages look to be turning higher and the price action has been quite constructive in that it’s been just tracking sideways, just consolidating over the last few weeks. This market, it fell…I think that’s a 46% fall. So, really big decline. And we’re only relatively early into a potential recovery.

The Tech Index hasn’t triggered a buy signal yet as the 50 an d100 day moving averages haven’t crossed. That said, if you’re using say 20-day and 50-day moving averages, which are completely valid to use, they have crossed. I use the longer-dated ones because it filters the signals a little bit more, so an extra layer of filtering I get fewer signals. But those shorter-term averages can also be quite useful.

My Motion Trader system that does all the algorithmic scans of all the ASX stocks. So, it’s going to be picking up the individual stocks within this technology sector if and when they start to stack up. But if you’re after a broader approach and you wanted to get some technology exposure locally, well, beta shares have Australian technology ETF. The ticket code is ATEC. That could be worth looking at just for that broader incremental exposure to technology.

Now I want to talk about a couple of individual stocks because I find the individual stocks always so fascinating to have a look at. One of the things I’m often asked is that people say, “What stocks should I be considering buying after a correction? Do I buy stocks that are down near their lows or ones that are already rising?” So, I’ll show you how I like to approach this.

This is a stock I just had a look at through the week. Came to my attention through the week. It’s Treasury Estate Wines. So, this is an interesting stock. It was a super performer during the mid-2010s. Then we had China put on all their tariffs on wines. Stock price fell away. Interesting what happened from there in that we got this big basing formation over a year-and-a-half, then the moving averages turned higher. So, Motion Trader gave its first buy signal for this when the moving averages first crossed back in February ’21. Started to get some upside, went through a consolidation period. It’s still on the Motion Trader portfolio because we’ve got these wide trailing stops. So, it keeps you in during these consolidations and has continued to pay dividends. So, that’s all been…it’s been good to fit there.

Why I draw attention to this chart now is that the moving averages have crossed again after a period of declining. So, this would trigger a signal. This would be a buy signal for me. Moving averages have crossed, shares have broken to a new high, so it would have been a signal around here. It’s had a couple of good days. I think there must have been earnings released in the last couple of days. It shot higher. But this is stock that I like. It may well pause here because it is now quite a bit above that moving average so it might get some consolidation, but the underlying trend in this to me looks good. It’s a stock that could continue to do well over the next several months. So, this is a stock I like to get into. I think the odds favor higher levels.

Now let me show you what to avoid. So, here’s one of these buy now pay later type companies, email payments. Now, this has been in a downtrend since May. There’s been no reason to buy this stock since it broke lower in May. The moving averages has crossed. There’ve been plenty of some decent rallies there. These are 20%, 30%, 40% rallies, but the underlying trend has been down. It’s still down. So, people are buying these stocks looking for recovery. They’re betting against the trend and they’re betting a stock that isn’t working is going to work. Someday it may but who knows when that may be?

So, these are the stocks I’ll avoid. For me, really it’s all about cherry-picking. It’s looking for those strong stocks and building a portfolio around them. So, of course, nothing guarantees that anything above the moving averages are going to be a star performer but you just start to weight your portfolio between building a portfolio with a strong stock bias. That’s basically what I try to do with my own portfolio, with my members’ Motion Trader portfolios. That’s what it’s all about. And that’s about putting the odds in your favour.

Please see video for more details analysis and charts

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Meet Jason

I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney. 
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.