Buy Signals For ASX Stocks Surge | Episode 89

By Jason McIntosh | Published 2 December 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

00:33 Few investors thought this rally possible (where to next?)

04:16 This breakout looks like the real deal (most people aren’t watching)

05:50 Here’s my view on the ASX Small Ordinaries

07:57 I’m see more and more stock set-ups like this

10:56 Gold continues to run (should you buy or wait?)

13:38 Watch this level in the Aussie gold price

Transcript

Please note: Charts available from video

This video is going to focus on the ASX 200. I’m also going to have a look at the latest developments in gold, and I’ve got a couple of other fascinating charts for you, so make sure you stick around for those. I’m going to cover the S&P 500 in a separate video. As always, this is general commentary and doesn’t take your personal situation into account. With all of that said, let’s get into our first chart.

So, here we have the ASX 200 on the screen. And it’s been another positive week for the local market. These moving averages, they continue to extend higher after crossing a couple of weeks ago. And what we’ve also had this week is that the ASX 200 price has popped above this resistance band. So, if we just compress this chart a bit, you can see this resistance band dates back to around May 2021. So, it’s been quite a significant region for some time.

Now, as I pointed out last week, it’s not a perfect resistance band in that you can see there are a couple of points where the market does overshoot on the top side as well as on the downside. So, will this be another false break or false incursion to the other side of the band, or is it for real? So, that’s what we’re going to have to work out probably over the next several weeks. But I think overall, the technical structure of ASX 200 is looking positive. I thought there may have been… Last week I was talking about the potential of the market pausing whilst these moving averages caught up, maybe some sort of a pullback. We started to see signs of a pullback early in the week, but then when we had the comments by Fed Governor Powell midweek, the market shot higher. So, we haven’t had that pullback.

And it’s really interesting when you look at this market now when you look at this rally because I think this is the rally that so many people just thought was not at all possible given where we were…just going back four weeks. And if you’ve been following these videos, you’d know we have had clues. We’ve had clues that there was upside potential going back…could be going back five, six weeks. So, hopefully, you’ve got some exposure to this move we’ve been having. And the key now is how do we manage that exposure, and how do we potentially add to it. And so that’s a big question now. Where does this market go from here? And I still believe that this rally that we have had needs to be checked. It needs to pause, it needs to consolidate. Basically, exactly what I said a week ago. And of course, the market is a bit higher but doesn’t change the fact that we are stretched above these moving averages. And if you look at the last 2 months, market’s up 15%, and in an ordinary year, a 15% gain would be a pretty solid year, actually, it’d be an above-average year.

So, from that standpoint, I don’t think where we are at the moment, despite the fact that we’re popped above this resistance band, I don’t think this is an asymmetric entry point for the ASX 200. That said, individual stocks are still presenting opportunities when I go through the individual stocks on a case-by-case basis. Just looking at the last week, I sent out a range of new buy signals for stocks, and when I look at them, a lot of them are turning higher from basing formations where the moving averages have just crossed, there are breakouts, the risk-reward looks good. So, I think this is really approaching the market on a case-by-case basis at the moment, and just looking for the right setups and the right entry points.

Interesting to have a look at the ASX 200 equal-weighted index which we spoke about last week. Had the breakout last week, and that breakout has been holding. Again, I thought we may have got a bit more of a pullback, but we’ve had the pop higher. So, we’ve seen that rally really start to extend. We are approaching some resistance in the equal weight. So, if I just look at this chart, and you can see if we look probably from around here… Let’s just put something in. Yeah. This seems to work out quite nicely. You can see there’s some resistance points through there, bit of activity around there, doesn’t match up precisely there, and that’s often the case with technical analysis, not perfection. You’re looking for points of potential support or resistance, and of course, picks up this August high, and we are approaching it now. So, there is some potential for a pause when you look at an equal-weighted basis as well as when we look at it on the ASX 200. These moving averages are now crossing, which is a positive.

So, there’s definitely positive signs on this chart, and there has been for several weeks now but it continues to improve. It’s just a case of where are we going in the near term. How much higher can this extend before we get the typical type of pullback? And where is a good risk-reward entry point going to be for adding to existing positions or potentially establishing new positions? And that’s really what we’re trying to figure out as we watch this price action develop.

Looking at the small ordinaries. Again, the price action continues to build nicely. Really seems to be stepping higher with impulsive rallies, and the pullback seem to be quite constructive. Again, also, really encouraging to see the dips being bought. So, when you see these dips, you find the market seems to find support as buying comes in, and then you get another impulsive move to the upside. Saw the same thing over the last couple of weeks, sideways consolidation, and then a break to the upside. If you zoom in on this, you can actually see a nice little trading range that the Small Ords was in. And these are continuation patterns you look for in terms of where do you establish positions on breakouts. Often good risk-reward points to establish positions.

And when I look at the small ordinaries, I think it really stacks up nicely. These moving averages continue to turn higher. Should this constructive price action continue, I’d expect them to cross maybe in the next couple of weeks, potentially. And it looks like it’s got scope for this rally to continue up towards this resistance point which is still a bit above the market. So, I think good recovery potential in the Small Ordinaries. And I’ll give you a quick example of the type of situation I’ve been seeing more of recently in smaller stocks.

And the first thing, though, if you’re getting some value from this, please hit that like button, leave me a short comment, just “Hey, thanks for the video.” It just tells YouTube people are watching, people are engaging, then YouTube shows more people. So, that’s a huge help. And hit that subscribe button if you haven’t already so YouTube knows you’re a channel follower. And of course, come and visit me over at Motion Trader if you haven’t already done so, and look at the work that I’m doing there for my subscribers that maybe might be able to help you with the things you are trying to achieve in the markets.

So, moving on to this stock. So, this was an interesting one that turned up several weeks ago. It’s a small company called XTEK Limited, ticker code is XTE. Now, I hadn’t heard of this stock before when it first appeared in my daily scans, and that’s often the case. It’s often the case with a lot of stocks that I look at. So, this one is outside of the All Ordinaries. It doesn’t make the top 500, and that’s often the case with some of these smaller emerging growth-orientated plays, and some of them grow quite significantly and they make their way to the All Ordinaries ASX 300, of course. Even when they do that, they’re often at a much higher share price. So, for me, it’s about trying to pick them up earlier. So, it’s interesting it’s involved in Homeland Security.

Now, this isn’t an active buy at the moment, so I’ll just emphasize that now. It’s not an active buy up here. It’s more looking at the setup that led to the buy in the first place. It’s a positive trend. It isn’t an upward trend, I like that, but it’s stretched above those moving averages, so I’d be hesitant to buy today. I’d like to see it consolidate and then form a new base and then turn higher. But nonetheless, just going through the setup, it’s interesting to see how these things develop. Moving averages first crossed back in April, not necessarily a buy. Moving averages often cross and then the market then continues to roll over and fall away again. What was positive here is that after the cross, we had the strong move higher, got well away from the moving averages, and as I say, the moving averages often result in the market pulling back.

And that’s what happened with XTEK. We went into this sideways consolidation for a couple of months. Price action really contracted, came back to the moving averages, which is one of the things I’m talking about at the moment about markets pulling back towards moving averages. And this is where the buy signal came. The buy signal came on the break out of this pattern, away from the moving averages, right around here in September. This is when I sent a signal out to my Motion Trader members. That’s when the positive momentum… There was enough evidence back in the momentum to trigger a buy signal. It was interesting just looking at this chart. There’s another little pattern there, a little flagging formation which the market broke up from. And interestingly enough, I got another buy signal sent out to members a week or so ago just as it was breaking out.

So, these are the setups which I’m seeing at the moment across a number of stocks, which is an underlying sign of a healthy market when you see stocks with basing patterns and they’re turning higher, they’re breaking upwards. That’s what I want to see internally in a market. It’s great to look at the index. It’s also good to look at the internals of the market. What are the individual stocks doing? So, I thought that was interesting to have a look at to see what’s been going on there.

Now, let’s move on to gold, have a look at what’s going on in gold. And gold had another positive week, another positive price action week. And it’s really started to extend higher quickly, probably a little bit quicker than I thought. Last week we were talking about how the market had pulled back. It had come back to some Fibonacci Retracements, back to the moving averages. It was setting up nicely. I thought maybe it could have tracked sideways for another week or two, but that’s not what it’s done. It did the minimum work, minimum pullback, and it’s pushed higher again. I don’t like chasing gold and gold stocks. So, what I find with the gold sector is it can fly quickly on excitement, and then it can quickly pull back. So, I’m hesitant to be adding to my positions up here.

I’ve spoken about gold over the last few weeks, and there have been opportunities to get in. So, hopefully, maybe if you are interested in gold, you have some exposure. It’s now a case of looking for the setups and trying to work out where the next best point to add to those positions are, maybe get some new positions if you don’t already have them. Moving averages haven’t yet crossed, so again, it’s another reason why I’m hesitant to be chasing gold up here. It does open the possibility that we do get some sort of a pullback towards those averages at some point.

And when I look at a stock like Northern Star, for instance, this is an interesting one because I sent out a buy signal for Northern Star, triggered a signal on this day here back on the 7th of November. Moving averages had crossed, and it had just broken above these previous high points to a new high. That was a signal. It’s continued to run nicely. So, gold’s up move hasn’t come as a surprise. There have been clues that this upward momentum has been developing. What we find now, though, after such a strong run, stretched above the moving averages, there’s resistance above the market around $11.70. So, this is typical of a lot of the gold stocks in that maybe there’s going to be some sort of a pause or a pullback. And it’s a case of if that happens, watching how that develops, seeing whether that leads to setups which offer good risk-reward entry points to establish positions or add to positions. So, sometimes it’s about being patient, not being too quick, not letting fear of missing out impact you in that you rush in and you pay too high a price, and then later regret being so eager to get in.

And one thing I am watching with a lot of interest is I’m watching the Aussie gold price. So, we’ve talked about gold in U.S. dollars. Just quickly having a look at gold in Australian dollar terms. So, this is the Aussie dollar gold price, and it really hasn’t done much for the last couple of years. It’s really been a case of treading sideways. But when we look at this price action now, the moving averages have turned positive. We had a nice move off this support level back in October. So, this support ran back to May ’21, a good support level through there. Tested it back in September. Good rally off it that resulted in those moving averages crossing. Now we’re just tracking sideways.

It looks a bit like a triangle-type pattern. I won’t draw it in at the moment because I’m not sure it’s quite complete. But it’s a consolidation. It’s a trading range, nonetheless. What I’ll be watching is I’ll just be watching these highs. I think the trigger point for this would be if Aussie dollar gold breaks above…that’s around 2,680. A break above there I think would say that the momentum is really now starting to re-engage, and we’ll be looking for higher levels in Aussie gold. So, one of those interesting things to keep an eye on.

Lots of really interesting things happening in the market at the moment. Hopefully, you’re finding these videos interesting. Please give me that like. Thanks for joining me. Look forward to coming back and having a chat to you next week.

Please see video for more details analysis and charts

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