Key Sector Dragging ASX 200 Lower | Episode 138
Where is the Stock Market Heading?
00:30 Why the ASX 200 is lagging (will it continue?)
02:16 Watch this group of key stocks
03:49 Is it time to buy the Small Ords?
06:15 Should you buy the pullback in gold?
07:12 An emerging trend (and 5 stocks to play it)
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 gold and uranium. And I’ve also got a handful of uranium stocks to go through and have a look at, so make sure you stick around for that. I’m going to cover the S&P 500 in a separate video (you can watch that here). As always, this is general commentary. It doesn’t take your personal situation into account. With all of that said, let’s get into our first chart.
So, let’s kick off with the ASX 200. And it really hasn’t… What’s interesting with the ASX 200 is it’s really not running with what we’re seeing in the U.S. market. We’ve got this series of lower highs that’s been playing out since back in February. And we really need to see this sequence broken to start getting any enthusiasm I think for the local market. Whilst we’ve got this sequence of lower lows in place, we’re still drifting within this large trading band which has been in place going back to August 2021. So, we’re coming up to almost two years of a lot of frustration for a lot of people involved in the local market.
And the other thing to note is we’re also trading down here below the moving averages. So, of course, as always, the 50 and the 100-day moving averages. The market’s trading below there. So, there’s always an element of vulnerability, and I think caution when you’re below moving averages.
I’ve marked out the Fibonacci retracement region just in here. So, that’s marking out the rally from the March low through to the April high. We’re still within the parameters of what could be considered a pullback from that rally, but we really do need to see some of these rallies gain some traction. And until we see that, it’s just not a market to be particularly excited about. And I think a drag on this market continues to be the banking sector, which is such a big part of the local ASX 200.
So, just looking at Westpac this week. And Westpac continues to struggle. I’m just going to put this onto a daily chart. I’ve got that on a weekly there, but just looking it on a daily chart, Westpac’s daily chart. And just this week, it’s traded down to an 11-month low. Momentum is definitely to the downside. Moving averages are firmly lower. Now, this could well base somewhere around here, but we need to see that stability come into the banks I think before we’re really going to see the ASX 200 get itself into gear.
And last week, we spoke about CBA. And it continues to coil within this trading range. And at the lower end of this trend line support, from the lower end of the range, what happened here is going to be quite important. Are we going to get…what we want to watch out for is a short bounce and then a decline below the averages. And that price action would weigh on the ASX 200 naturally with CBA being one of the largest stocks. So, that’s one of the things to look out for in the local market.
And just going along and having a look at the small ordinaries. And it’s the same story as last week. Small ordinaries, we’re right in the middle of this trading range which has been in place going back to June last year. So, around 12 months of sideways and treading water really. Below the moving averages, so again, it adds that element of vulnerability. But I think, at the moment, it’s a market which I don’t think there’s a hurry to do a great deal. For me, this remains very much…and again, with the Australian market generally, it remains very much a stock-specific market. And still, even whilst being stock-specific, it’s still not an easy market. It’s not a straightforward market at all.
During these periods where you don’t have those dominant trends, there are going to be more false breaks. The trends you do get will tend to be not as strong as during a strong upward phase in the market. And it can be a really frustrating time. I think really it’s all about now we’ve just got to wait. You’ve got to wait it out. You’ve got to wait for the right opportunities. Got to manage risk. Got to protect capital. And so when things do improve, which they invariably will, you are ready to play. You’re emotionally in a good state and you’re financially in a good state because you haven’t done too much damage by buying stocks in downtrends and trying to pick lows during a non-trending period in the market. I know it’s hard to imagine but these lackluster periods ultimately result in strong bullish periods. It happens over the decades, going back as far as markets go back. It’s all part of the cycle.
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Now, let’s jump through a few commodities. Gold. Well, there’s not a great deal to add to what I said last week. I think for the time being, the fun part of the gold move is over and we are now in the consolidation, and we are consolidating beneath this big overhead resistance zone at around 2080. I just think it’s going to take time. I think it’s going to take time before we can look for a breakout above there. Could, of course, be wrong. That upward momentum could reengage quickly and gold could be up and above this resistance. But whilst we’re just sitting close beneath it and we’ve had a big run from the lows of last year, I don’t think there’s a rush to dive into the gold sector. Let profits run and stocks which have done well I think. I think that would be a sensible play. But yeah, I think the excitement is over for the time being.
Now, I want to spend a little bit more time on uranium. Uranium is looking… I think uranium is the most interesting of the commodities at this point in time. We’ve got this breakout from… I spoke about this last week. We got a breakout from this contracting trading range in uranium. And what’s been positive about the last week is that uranium’s been able to hold onto these gains. Hasn’t quickly given them back. And so that’s an encouraging sign.
Interesting to look at the volume profiles. You can see the volume was rising as the market was rallying, and just in the last week, the volume’s dried up, and the price… So far, we’re having a shallow consolidation. So, these are good steps in what could potentially be an emerging upward period or a bullish trend in uranium.
Now, I’ve got this overhead resistance that comes in. This is a uranium ETF, the Sprott Physical Uranium ETF. It’s trading on the TSX, the Toronto Stock Exchange. It’s a good guide to where the uranium…the actual physical price is. So, the resistance is coming in around the $18 mark. A break above there would be the next step in saying, “This is looking really good.” I think in terms of how do you play uranium? What are the plays to look at? Well, I think this is potentially one of them, just buying the Physical Uranium ETF. Got to go via the TSX, the Toronto Stock Exchange to do that though. We can’t play this on the ASX. But this is potentially worth doing if you have a broker that gives you access to the Toronto Stock Exchange.
Another interesting play is the big Canadian player, Cameco Corporation. Now, this trades on the New York Stock Exchange. So, a lot of brokers will give you access to U.S. stocks, and if you have that, well, Cameco… I think Cameco would be the institutional go-to for institutions that want to move money into the uranium space. And it is a small market. It’s a fraction of the size of the gold market. So, if we do get a situation at some point in the future where there’s institutional demand for uranium stocks, Cameco would be the go-to. I think that’s a really interesting potential play. Broken out of this triangle trading range which it had been in going back to April 2022.
And also looking at the volume profile. We had a spike in volume, an increase in volume on the breakout. And just like the uranium ETF, we’ve had a contraction in volume during this sideways consolidation following the breakout. So, the price action has been constructive. It’s encouraging risk-reward-wise. It stacks up for me. It’s asymmetric when you’re buying a breakout. You can have an exit level just back within the breakout region, and you’ve got upside potential as well. It’s wherever it could potentially go. So, I like the look of Cameco.
A couple of other stocks I’m looking at. I’m liking the look of NexGen Energy. This one’s trading on the Toronto Stock Exchange. It’s an interesting one because NexGen also trades on the ASX. It’s not a liquid stock, but it does match what the Canadian listing is doing. What’s interesting about this is there’s a big support band not too far from where the current price is. The moving averages are starting to turn higher. They haven’t crossed yet. That’s the 50 and the 100-day moving average. Had a nice strong move higher. Looking at the volume, the volume profile looks good on that move up. The volume’s contracted during the pullback. It’s potentially setting up as one of the better-looking uranium plays at the moment.
Another one which I think is worth keeping an eye on is this one here, Energy Fuels. Again, listed on the TSX. Got its support band. Same situation. Moving averages are turning higher. Price is above the averages. It looks like this could be the stepping stone to another push higher. So, a few interesting stocks to look there for those who have access to some of the international players.
On the ASX, not as many good ones to choose from. The standout I think is Boss Energy, which is BOE. But this one’s already… This is a trickier one from an entry point. It looks like it’s breaking out of this broad range which it’s been in for quite a while now, but it has had a big run from its lows. So, it just feels like maybe this is stretched, maybe it’s got to pull back towards these moving averages. I’m just not sure on the timing of it, although it is my preferred ASX-listed uranium play.
Looking at stocks like Paladin and Deep Yellow, they just don’t look as impressive. They’re not trading as well relative to their moving averages. And then there’s a long tail of stocks on the ASX uranium players. They’re small stocks. They’re speculative stocks. At the moment, the plays seem to be in the uranium ETF itself in a stock like Cameco, like BOE, and also the URNM, uranium stock ETF, which is worth having a look at. There’s a beta shares version which trades on the ASX. So, do some research, have a look at that.
So, a lot of the uranium plays are actually in downtrends. They’re not looking that impressive. So, I think it’s very stock-specific at this early stage of what could potentially be something which could be quite interesting in the uranium market.
So, let’s leave that there for this week. Hopefully, that’s been interesting. Please, yeah, give me that like if it was. And I look forward to coming back and talking to you next week. Till then, bye for now.
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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.