ASX 200 Heads For June Low | Episode 70

By Jason McIntosh | Published 23 September 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

00:26 ASX sell-off intensifies (where to next)

02:20 This is what I’m doing with my portfolio

03:20 Will the ASX 200 break the June low?

04:08 Assessing the technical damage to the ASX Small Ordinaries

06:50 Look out if gold does this

Transcript (abridged)

Please note: Charts available from video

So, here is ASX 200 on the screen. And as I film this on Friday afternoon, the selling has really intensified throughout the day. And it really caps off what’s been a pretty ugly two weeks, so two weeks in a row. Last week, we had a 5% trading range, and this week we’ve got a trading range of a bit over 4%. So, there’s some pretty big moves. It’s not often that you see back-to-back trading ranges of close to 10% in total. It’s pretty volatile stuff. And as I said last week, the volatility just highlights the need for caution in this current environment. And I think while the ASX 200 remains below these moving averages…so we’ve got the 50 and the 100-day moving average on the screen, whilst the ASX 200 remains below those moving averages, it remains in a vulnerable position.

So, I’m going to jump across to the four-hourly charts to get a little bit more detail on the price action we’ve had over the last week. And early in the week, we had prices attempted to rebound off this support. So, that was encouraging, and it gave the possibility that maybe the market would be able to try and attempt another rally. But that just didn’t last long. As soon as that U.S. rate hike came out, the market started to pull back, and the selling has been gathering momentum over Thursday and Friday, and then clearly taking it below this 6700 support zone.

I said last week that we needed to prepare for downside surprises. And I’ve got to say, unfortunately, that remains the case now that this support has given way. And for me, that means no leverage. And I’ve also got a high cash position. I think that’s the play at the moment. I’ve also sold some of my ETF position which I’d built up through this rally in the market. And it’s a case of when the market is rising, if it did extend into something larger, I didn’t want to be left behind. So, I wanted a foothold on the market, but now the market is rolling over. It’s breaking support. I’m not going to argue with the market, and I’m going to retreat, protect capital, and wait for the next opportunity to move back and establish a position where the risk-reward appears favorable.

And so let’s jump back to the daily chart. And so with this decisive break below support, I think it really does reengage the sell cycle that’s been in place really since back here in January. And I think it’s now likely that the S&P 200…I think it’s likely we’re going to now retest and then break that June low. I think that’s what we now need to prepare for is this pullback from the recent high. It’s pulled back by so much. It’s retraced so much of that rally from the June low that it now looks like it will continue to extend that a little bit further, retest, and probably break the low.

And also with the small ordinaries, if we just jump over and have a look at that. It’s been a particularly rough day. Small ords is down something over 3%. And it had been holding up relatively well. Even just last week, I was talking saying, “It was encouraging in that it was holding on to much of this gain,” but just in the last few days, it’s really just given way and it’s retraced a lot of that gain from the June low. I think that does a lot of technical damage to the way the small ordinaries look. A lot of technical damage has been done through here. And I think even in the best case scenarios, I think it’s going to take time to rebuild a positive price structure which the market can then start to round up and test higher again. But I think that’s a little way off now. This is going to take time for this to play out and see what’s in store with this current next leg lower in this sell cycle.

I think the play here is to stay defensive. I’m still holding my relatively strong stocks in my portfolio, but then I’m also selling others as soon as they hit their exit stops. And I certainly wouldn’t be buying the dip. So many people talk about buying the dip, and they have been talking about buying the dip since the high earlier in the year. But I think buy the dip is one of those things…buy the dip works well when stocks are on a primary uptrend. When they’re in a primary downtrend and they’re below their moving averages, that’s when you stand aside. You don’t buy the dip. I think people who have been buying this dip the whole way down, they’re probably now wondering, “Well, what do I do now? Do I keep buying the dip?” And particularly with individual stocks, it can be a world of pain working out what to do with these stocks which are continuing to decline.

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And now I want to finish up with a quick look at gold because it’s been an interesting week in gold as well. So, just finding our gold chart. So, what we have with gold is it’s pretty much spent all week sitting right on this support zone at 1680. So, this is a key support, and it goes all the way back two-and-a-half years to around February 2020. So, it’s a significant support zone. And I think the longer gold sits here, I think the more vulnerable it becomes. It becomes more vulnerable to…It can’t bounce. All these previous times it’s come down, it’s bounced straight away. Now it looks like it’s sitting waiting to be hit. And that’s the risk I’m afraid to say with gold while it sits here. The price action just doesn’t support a bullish stance at this moment. I want to be bullish on gold. I’ve been bullish on gold for a long time, but you can’t argue with the price action. The price action doesn’t support that bullish stance at this present time.

And if we look at the gold stocks. So, let’s just have a quick look at one gold stock. We’ll look at Evolution Mining. So, I’m going to put this on a weekly chart to give us a bigger perspective of what’s been going on. Now, this is quite typical of the gold sector generally what’s going on in Evolution. And I’ve got to say there is absolutely nothing bullish about this chart. It does appear oversold. It’s had a strong move down over the last few months. It is oversold, and it could well rebound. It could get a rebound, and the rebound from $2 to $3, for instance, would be…it’d be quite a good rebound, but they’re very hard rebounds to try and catch and there’s a lot of risk in trying to catch them. Long way below those moving averages. But playing for that snapback rally, I think that’s risky. I think the overall technical structure is awful. There’s a whole lot of technical damage done, and this is typical across the sector.

Just look at what happened after this selloff during 2012, 2013. This was something like a 70% decline, big decline. If we move the chart back there, it looks a bit uglier when you can zoom in on the price action a little bit more, really big decline. But look at this, then it took a good couple of years. And remember, this is a weekly chart, took a couple of years of back and forth, did have a snapback rally, gave it back, chopped around before things got going again. So, from this point in time for a bull scenario, I think it’s still going to take time. It’ll take time for a stock like this and stocks like golds, in general, to base, turn higher, and rally again.

Please see video for more details analysis and charts

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