ASX: Banks and Miners v the Rest

The struggle between miners and banks is changing.

The ASX 200 rallied this week, breaking out of its downward trend channel. Although in a primary down-trend after breaching 5800, the index is enjoying strong support.

ASX 200

And that is despite the Banks taking a hammering.

ASX 300 Banks

Miners did nothing this week.

ASX 300 Banks

But most other sectors rallied strongly: Consumer Staples…

ASX 200 Staples

Consumer Discretionary, Health Care…

ASX 200 Health Care

Utilities and Industrials.

ASX 200 Industrials

The change reflects a rosier global outlook, with Commodities rising, but I doubt that it can last without support from the ASX 200’s two biggest sectors.

ASX: Miners versus Banks

The struggle between miners and banks continues.

The ASX 300 Metals & Mining index is rallying strongly. Breakout above 3600 and the descending trendline suggests that the correction is over and a new advance is underway.

ASX 300 Banks

But the financial sector is being hammered by bad press from the Royal Commission and the ASX 300 Banks index is likely to test the 2016 low at 7100. Trend Index peaks below zero warn of strong selling pressure.

ASX 300 Banks

The ASX 200 index recovered above primary support level at 5800 but bearish divergence on Twiggs Money Flow continues to warn of long-term selling pressure. Retreat below 5800 is likely and would confirm the primary down-trend. Breach of mid-2017 lows at 5650 would strengthen the bear signal, offering a target of 5050 (the June and November 2016 lows).

ASX 200

S&P 500 volatility

The S&P 500 again respected primary support at 2550. Twiggs Volatility Index is retreating but a trough that forms above 1.0% would warn that market risk remains elevated.

S&P 500

ASX 200: Miners versus Banks

Direction of the ASX 200 is generally dictated by the two largest sectors: banks and miners.

The ASX 300 Metals & Mining index rallied off its long-term rising trendline this week. Breakout above 3600 would signal that the correction is over and a new advance is to be expected.

ASX 300 Banks

But the big four banks dominate index weightings and the ASX 300 Banks index respected resistance at 8000, confirming a primary decline. Trend Index peaks below zero warn of strong selling pressure. Target for the decline is the 2016 low at 7100.

ASX 300 Banks

The ASX 200 index recovered above primary support level at 5800 but its hold looks precarious. Bearish divergence on Twiggs Money Flow warns of long-term selling pressure (the Trend Index is even more bearish). Retreat below 5800 is likely and would confirm the primary down-trend. Breach of mid-2017 lows at 5650 would strengthen the bear signal, offering a target of 5050 (the June and November 2016 lows).

ASX 200

S&P 500 and Volatility

After a brief flicker of fear, when volatility spiked above 30, the VIX is hovering around 20 suggesting uncertainty. The market is undecided whether to take this Twitter War seriously.

CBOE Volatility Index (VIX)

The S&P 500 is again testing primary support around 2550 but Twiggs Money Flow remains comfortably above zero, indicating long-term buying support.

S&P 500

Twiggs Volatility (21-day) is still in the amber zone, between 1% and 2%. A rise above 2% remains unlikely but another trough above 1% is my primary concern and would convince me to reduce equity exposure to 50% (of portfolio value).

S&P 500

J.P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, “What should I do about my stocks?” Morgan replied, “Sell down to your sleeping point.” ~ Burton Malkiel

Banks lead ASX 200 lower

The ASX 300 Banks index is retracing to test the primary support level at 8000 breached 3 weeks ago. Trend Index peaks below zero warn of selling pressure. Respect of resistance at 8000 is likely and would warn of a primary decline to the 2016 low at 7100.

ASX 300 Banks

The Royal Commission on banking is having a two-fold effect on the market. First, airing of banks’ dirty laundry in public has increased investor concerns, leading to a sell-off in banking stocks. But the second effect may be more significant. Banks are expected to tighten lending standards as a result of the commission, which will slow credit growth. Slower credit growth would result in falling house prices as new buyers struggle to obtain finance, except at lower LVRs and higher interest rates. Falling house prices in turn would encourage banks to further tighten lending standards. Slower lending growth and higher default rates would both impact on bank earnings….. and stock prices.

Adding to ASX misery, the Resources sector is undergoing a correction, now in its third month, with the ASX 300 Metals & Mining index heading for a test of support at 3250.

ASX 300 Banks

The ASX 200 index is retracing to test its former primary support level at 5800. Bearish divergence on Twiggs Money Flow warns of selling pressure. Respect of resistance is likely and would confirm a primary down-trend. Breach of the mid-2017 lows at 5650 would strengthen the bear signal, offering a target of the June and November 2016 lows at 5050.

ASX 200

ASX slipping over the edge

The ASX 300 Banks index followed through after breaching primary support (at 8000) last week. Bearish divergence on the Trend Index confirms strong selling pressure. Expect a primary decline to target the 2016 low at 7100.

ASX 300 Banks

The ASX 200 index slipped below primary support at 5800 this morning, warning of a primary down-trend. A close below 5800 this afternoon would strengthen the signal. Bearish divergence on Twiggs Trend Index signals selling pressure. Expect a test of the June to September low at 5650. Breach of 5650 would confirm a primary decline and target the June and November 2016 lows at 5050.

ASX 200

Crunch time for the ASX

The ASX 300 Banks index breached primary support at 8000, signaling renewal of the primary down-trend. Bearish divergence on the Trend Index has been warning of strong selling pressure for some months, reinforced by the Trend Index holding below zero for almost a year. A primary decline is expected to target the 2016 low at 7100.

ASX 300 Banks

Decline of its largest sector is likely to weigh heavily on the ASX 200 index. Bearish divergence on Twiggs Trend Index warns of selling pressure. Breach of primary support at 5800 is likely and would present a short-term target at 5650. Follow-through below 5650 would confirm a primary decline and a target of the June and November 2016 lows at 5050.

ASX 200

ASX 200 meets stubborn resistance

A long-term, monthly chart filters out most short-term market ‘noise’. The ASX 200 has found stubborn resistance at 6000, while bearish divergence on the Trend Index warns of selling pressure. Follow-through below 5900 would warn of a test of primary support at 5600/5650. A primary down-turn on ASX banks would strengthen the bear signal.

ASX 200

The ASX 300 Metals & Mining index continues in a primary up-trend. Respect of the rising trendline remains likely and would suggest another primary advance.

ASX 300 Metals & Mining

The ASX 300 Banks index rallied strongly in 2016/2017 but bearish divergence on the Trend Index now warns of strong selling pressure. Breach of primary support at 8000 would signal renewal of the primary down-trend, with a target of 7000. A down-trend in its largest sector would weigh on the entire ASX 200 index.

ASX 300 Banks

Gold & Dollar: The big picture

Continuing with long-term, monthly charts, the Dollar Index is in a primary down-trend. The latest rally is likely to respect resistance at 92. Breach of support at 88 would signal another decline.

Dollar Index

* Target calculation: 91 – (95 – 91) =87

Gold has formed a broad base over the last 4 years. Breakout above resistance at $1350 per ounce is likely in the long run, aided by a weaker Dollar, and would signal a primary advance.

Spot Gold

The All Ordinaries Gold Index is in a primary up-trend. The large ascending triangle is testing resistance at 5000/5100. Breakout would signal a primary advance with a long-term target of 6000*. But the declining Trend Index warns of medium-term selling pressure and penetration of the rising trendline would warn that momentum is slowing.

All Ords Gold Index

* Target calculation: 5000 + (5000 – 4000) = 6000

East to West: The long game

It pays to regularly step back from daily fluctuations that characterize short-term charts, to examine the big picture using monthly or even quarterly charts.

Over the last 20 years there is one clear winner when comparing major indexes. India.

Major Index Comparison over 20 Years

Even after adjusting for a weaker (INR) currency.

US Dollar compared to Indian Rupee and Chinese Yuan

Over the last 5 years, however, the DJ China 15 Index has outstripped the Dow Industrial Average and DJ India 15 when measured in US Dollars.

Dow Jones US, India & China in USD

But the picture changes when comparing ETFs based on broader-based indexes.

Dow Jones US, India & China in USD last 2 years

While volatility is a problem, growth in these two rapidly-expanding economies (India & China) should not be ignored if investing for the long run. Nor the absence of long-term growth in the UK, Europe and Japan.

ASX 200: Bank relief but miners bearish

The ASX 300 Metals & Mining index broke support at 3500, warning of a test of primary support at 3300. The long-term up-trend is losing momentum.

ASX 300 Metals & Mining

Banks continue in a long-term down-trend but recovery above the former primary support level at 8100 offers temporary relief. Respect of the declining trendline warns of another test of primary support at 8000. Breach would signal a primary decline.

ASX 300 Banks

The ASX 200 remains hesitant. Bearish divergence on the Trend Index continues to warn of long-term selling pressure. A primary down-turn on either banks or miners would strengthen the bear signal. Breach of support at 5800 would signal a primary down-trend.

ASX 200

Gold waits on the Dollar

The Dollar Index continues to consolidate below resistance at 90.50. Downward breakout is likely and would offer a target of 87*.

Dollar Index

* Target calculation: 91 – (95 – 91) =87

Gold is ranging between $1300 and $1350 per ounce. A declining Dollar is bullish for gold. Breakout above $1375 would offer a target of $1450*.

Spot Gold

* Target calculation: 1350 + (1350 – 1250) = 1450

The All Ordinaries Gold Index is testing resistance at 5100. Upward breakout would signal a primary advance with a long-term target of 6000*.

All Ords Gold Index

* Target calculation: 5000 + (5000 – 4000) = 6000

ASX 200: Miners & banks spoil the party

Miners are undergoing a correction. Breach of the rising trendline and support at 3500 on the ASX 300 Metals & Mining index would warn that the up-trend is losing momentum.

ASX 300 Metals & Mining

Banks continue their bearish down-trend, respect of the declining trendline warns of another test of primary support at 8000. Breach would signal a primary decline.

ASX 300 Banks

The ASX 200 will follow if banks and miners, the two biggest sectors, fall. Bearish divergence on the Trend Index continues to warn of long-term selling pressure. Breach of support at 5800 would signal a primary down-trend.

ASX 200

Gold rallies as Dollar meets resistance

The Dollar rally ended, with the Dollar Index encountering stubborn resistance at 90.50. Expect a test of primary support at 88.50. Breach of support would signal a primary decline.

Dollar Index

* Target calculation: 91 – (95 – 91) =87

Gold found support at $1310 and is likely to again test resistance at $1360. A declining Dollar would be bullish for gold. Breakout above $1360 would offer a target of $1450*.

Spot Gold

* Target calculation: 1350 + (1350 – 1250) = 1450

The All Ordinaries Gold Index has been undermined by the strong Aussie Dollar but found support at the rising trendline. Expect another test of resistance at 5100. Breakout would signal a primary advance.

All Ords Gold Index

ASX 200 back from the brink

A positive week for the ASX 200 index as Australian banks came back from the brink, recovering above primary support at 8100. Expect a rally to test the declining LT trendline around 8350 but selling pressure continues, with the Trend index below zero, and another test of primary support, this time at 8000, is likely.

ASX 300 Banks

Miners continue their up-trend. Although this week’s bearish hanging man candle warns of a correction.

ASX 300 Metals & Mining

The ASX 200 will lift for as long as the bank rally lasts but ASX 300 Banks long-term trend is downward. Bearish divergence on the Trend Index continues to warn of long-term selling pressure.

ASX 200

Dollar drives long-term Gold prospects

The Dollar is likely to continue weakening over the next few years according to analysis from a number of major banks. A falling Dollar would be a bull signal for gold investors.

The Dollar Index rallied over the past few days but is likely to encounter stubborn resistance at 90.50. Respect is likely and would signal another test of support at 88.50. Breach of support would warn of another primary decline.

Dollar Index

* Target calculation: 91 – (95 – 91) =87

Gold lacks direction, ranging between 1310 and 1360, but that would change dramatically if the Dollar breaches support at 88.50. Breakout above $1360 would signal another primary advance, with a target of $1450*. Follow-through above $1375 would strengthen the signal.

Spot Gold

* Target calculation: 1350 + (1350 – 1250) = 1450

The All Ordinaries Gold Index has been undermined by the strong Aussie Dollar. Further weakness of the greenback would help support commodity prices and the Aussie. But further gains on XGD remain likely and recovery above 5100 would signal another advance.

All Ords Gold Index

East to West: Caution

Markets settled after the sharp fall of the previous week but a hint of caution was evident, with buyers wary of being caught by an after-shock. It should take several weeks for sentiment to settle back into a semblance of normal routine.

Short candles were common, as on South Korea’s Seoul Composite Index, with buyers displaying a lack of enthusiasm.

Seoul Composite Index

The long tail on Japan’s Nikkei 225 Index reflects buyer support but the large overlap with the previous candle suggests hesitancy.

Nikkei 225 Index

China’s Shanghai Composite Index likewise displays a short candle below the new resistance level at 3250.

Shanghai Composite Index

After a strong bull run India’s NSE Nifty Index is surprisingly hesitant. A close below the rising trendline would signal a test of primary support at 10000.

Nifty Index

DJ Euro Stoxx 600 shows a stronger blue candle but is still testing resistance at 380.

DJ Euro Stoxx 600

The Footsie shows a similar pattern, with resistance at 7300.

FTSE 100

In the US, bellwether transport stock Fedex respected support at 230. Follow-through above 250 is likely and would signal resumption of the up-trend, a bullish sign for the economy.

S&P 500

Canada’s TSX 60 respected primary support at 880. Recovery above 920 is likely and would indicate a test of 940.

TSX 60

Patience is required to weather the uncertainty of the next few weeks without making knee-jerk decisions.