The Banks Could Bring Down ASX 200

By Jason McIntosh | Published 10 June 2022

The ASX 200 has been weathering the global equity storm fairly well to date. It was even testing all-time highs in April. But cracks are starting to appear. It’s been a case of a few big stocks propping up the ASX 200. And by big stocks, I mean big resources and big banks. They’ve been the ones that have been holding the ASX 200 towards the upper end of its range.

The problem I’m seeing for the ASX 200 is that the big banks are starting to break lower, and these have been one of the key pillars supporting the market. The bank that stands out as being the weakest of charts is ANZ (you can view the vide with more charts here).

Have a look at this:

ANZ Australian bank stocks

What we see here is a series of lower highs and lower lows over the past year. Each high and each low tends to be just a little bit further south of the previous set. It’s held together quite well over the last nine or so months, but in the last few weeks it’s begun to accelerate downwards. You can see these moving averages (50 and 100 days) have clearly turned to the downside, and the share price is falling away from them.

This is a concerning sign as the banks have been one of the key props for the market. And ANZ isn’t on its own. You can also see similar weakness in Commonwealth Bank (ASX:CBA), National Australia Bank (ASX:NAB), and Westpac (ASX:WBC). Their moving averages haven’t crossed like ANZ’s, but I don’t think that ANZ is going to be unique. If ANZ’s share price continues lower, I think we’ll see further weakness in the banking sector, which is going to then be a weight on the ASX 200.

And as I was showing you last week, the ASX 200, is masking big declines in the Australian market generally. When we look at the ASX Small Ordinaries, it’s had a really tough week. It’s made new lows and is down over 20% from the high. So the rank and file of the ASX market is now in bear market territory, even though the ASX 200 itself is still holding above that official bear market measure of down 20%.

I’ve been saying for a while that I think investors should be playing defense in this market. And that goes for U.S. market, Europe, and basically any equity market around the world. I believe that people buying dips, and people trying to pick the low, are taking an awful amount of risk. The market structures that I’m seeing don’t support whole lot of risk-taking.

Opportunities will inevitably emerge. But for now, patience and protecting capital are the name of the game. I believe we need to monitor the market for positive price action. It will then be a case of reacting to what is happening, not pre-empting what might happen.

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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.