ASX 200 retreats

The ASX 200 retraced to test its new support level at 6050. Falling 21-day Twiggs Money Flow indicates medium-term selling pressure. Breach of 6050 would warn of a test of 5900.

ASX 200

The current advance is fueled by rising commodity prices, with the ASX 300 Metals & Mining index advancing strongly.

ASX 300 Metals & Mining

But the ASX 300 Banks index is pulling in the opposite direction, respecting resistance at 6500 while the Trend Index continues to warn of moderate selling pressure. Breach of 8300 is likely and would warn of a test of primary support at 8000/8100.

ASX 300 Banks

Target for the ASX 200 is the 2007 high of 6800 but a lot will depend on the relative strength of banks v. miners.

ASX struggles with resistance

Bulls were baited with a third ASX 200 breakout above resistance at 6000, only to see the index retreat yet again. Declining Money Flow warns of commitment from sellers. Breach of support at 5920 would confirm a correction already signaled by Money Flow (21-day) crossing to below zero.

ASX 200

The ASX 300 Retailing Index is weak, anticipating a poor Christmas.

ASX 300 Retailing

But Food & Staples Retailing is strengthening.

ASX 300 Food & Staples Retailing

ASX 200 direction, however, is largely determined by Banks and Miners.

The bear-trend on iron ore is weak, with the bulk commodity continuing its test of resistance at 70. Respect would warn of another decline, while breakout above 80 would signal a primary up-trend.

Iron Ore

The ASX 300 Metals & Mining Index, however, shows signs of selling pressure, with Money Flow (21-day) declining to zero. Breach of support at 3300 would warn of a correction.

ASX 300 Metals & Mining

Banks continue to disappoint, with the ASX 300 Banks index headed for a test of short-term support at 8250. Twiggs Trend Index peaks below zero indicate continued selling pressure. Breach of 8250 is likely and would warn of a test of primary support between 8000 and 8100.

ASX 300 Banks

ASX still hesitant

The ASX 200 index is running up against resistance at 6000. Reversal below support at 5920 would signal a correction. As would Twiggs Money Flow (21-day) crossing to below zero.

ASX 200

Iron ore is testing resistance at 70. Respect would warn of another (primary) decline. Breakout above 80 would signal a primary up-trend but that is unlikely if China continues to crack down on bank lending.

Iron Ore

The ASX 300 Metals & Mining Index is testing support at 3300. Decline of the Trend Index below zero warns of medium-term selling pressure. Breach of 3300 would warn of a correction.

ASX 300 Metals & Mining

The ASX 300 Banks index found short-term support at 8300. Recovery above 8500 would be a bullish sign but respect is more likely and would warn of a test of primary support between 8000 and 8100.

ASX 300 Banks

ASX still tentative

The ASX 300 Metals & Mining Index retraced to test support at 3300. Breach is still unlikely but would warn of a correction.

ASX 300 Metals & Mining

Iron ore strengthened to test the declining trendline but respect of resistance at 70 would warn of a continued down-trend. Breakout above 80 would signal reversal to a primary up-trend but that is unlikely if China continues to rein in bank and shadow bank lending.

Iron Ore

The ASX 300 Banks index broke support at 8500 and is expected to test primary support between 8000 and 8100. The sector faces headwinds from slowing development and falling prices, especially in high-density apartments. Recent Trend Index peaks at/below zero warn of long-term selling pressure.

ASX 300 Banks

Banks are the biggest sector in the broad ASX 200 index which retreated below resistance at 6000. Failure of short-term support at 5920 would signal a correction. The ASX 200 exhibits a tentative up-trend but bearish divergence on the Trend Index warns of long-term selling pressure.

ASX 200

ASX 200 faces resistance at 6000

The ASX 200 faces resistance at the key 6000 level. Money Flow is forming troughs above zero, indicating buying pressure. Recovery above 6000 would signal another advance. Failure of support at 5900 is less likely but would warn of a strong correction.

ASX 200

Iron ore prices are strengthening and likely to test the descending trendline at 70. Breakout above 80 would signal reversal to a primary up-trend but that still seems a long way off.

Iron Ore

Miners responded with another rally, the ASX 300 Metals & Mining Index respecting support at 3300.

ASX 300 Metals & Mining

So why the hesitancy? Banks are the largest sector in the ASX 200, with Financials representing 37.2% of the broad index. The ASX 300 Banks index is retreating and expected to test the band of support between 8000 and 8100. Trend Index peaks below zero warn of long-term selling pressure.

ASX 300 Banks

The outlook for banks is not that rosy. Household debt is growing faster than disposable incomes, placing finances in an increasingly precarious position. Interest payments are still manageable at 8% of disposable income but that could change if interest rates rise.

Australia: Household Debt/Disposable Income

The housing cycle appears to have peaked, with growth now falling. A function of tighter controls by APRA over investor lending and a Chinese crackdown on capital outflows.

Australia: House Prices

Building approvals for detached houses remain steady but approvals for higher-density housing are falling.

Australia: Building Approvals

A boom in construction of high-density housing has provided a strong tailwind to the economy over recent years, illustrated by the sharp spike in total residential construction compared to new houses in the chart below.

Australia: Value of Work Done

But the downturn in apartment prices and falling building approvals is likely to turn that tailwind into a headwind as apartment construction falls. This would affect not only the construction sector but the entire economy.

Political uncertainty over the continuation of favorable tax treatment for housing investors could also impact on new housing investment and strengthen the headwinds facing the economy.

ASX 200 tests support at 5900

Australia is headed for a period of political uncertainty, while tighter Chinese monetary policy and a crackdown on capital outflows will slow the local real estate boom. Employment is strong but low wage growth suggests under-employment.

Wage Index

Reliance on mining and real estate as the backbone of the economy is bound to disappoint. What the economy needs is a vibrant manufacturing and tech sector but this is shrinking rather than growing, with investment in machinery and equipment falling from 8% to almost 4% of GDP over the last decade.

Wage Index

Stocks are rising but we need to temper our enthusiasm with a hint of caution. The ASX 200 is testing medium-term support at 5900. The tall shadow on Friday’s candle indicates continued selling pressure. Breach of 5900 would warn of a strong correction to test primary support at 5650, while respect (indicated by recovery above 6000) would confirm an advance to 6250 (5950 + 300).

ASX 200

* Target calculation: 5950 + ( 5950 – 5650 ) = 6250

I remain wary of the banks because of their low capital base and high mortgage exposure. Reversal below the medium-term trendline warns of a correction to test the band of primary support between 8000 and 8100. Recovery above 8800 is less likely.

ASX 300 Banks

Miners are more bullish despite the low iron ore price. The ASX 300 Metals & Mining index is testing medium-term support at 3300. Respect is likely and would signal another advance.

ASX 300 Metals and Mining

ASX 200 meets resistance as miners retreat

The ASX 300 Metals & Mining index breached its new support level at 3300, warning of a bull trap. Penetration of the rising trendline would test primary support at 3100.

ASX 300 Metals and Mining

The divergence between iron ore and miners was bound to end and a correction of the Metals & Mining index is now likely. Iron ore below support at $62 warns of a test of primary support at $53. Declining Twiggs Trend Index signals selling pressure.

Iron ore

The ASX 200 encountered resistance at 5900. Retracement is likely to test the new support level at 5800 (top of the narrow ‘line’ formed over the last four months). Twiggs Money Flow reversal below zero would be a bearish sign.

ASX 200

The ASX 300 Banks index are testing resistance at 8800. Respect of resistance would warn of another test of primary support at 8000.

ASX 300 Banks

If banks and miners both turn bearish, the index is likely to follow.

Australian growth faces headwinds but the index has other ideas

Bill Evans at Westpac sums up their outlook for the Australian economy:

….Constraints on growth next year are likely to centre on a lack lustre consumer who struggles under the weight of weak wages growth; high energy prices and excessive leverage. Conditions in housing markets, particularly in the eastern states, are likely to soften while the residential construction boom will turn down.

We are also less euphoric about growth prospects for our major trading partners than seems to be the current consensus. We expect China’s growth rate to slow from 6.7% to 6.2% as the authorities step up policies to slow its long running credit boom.

Yet the ASX 200 broke out of its line formed over the last 4 months, signaling a primary advance.

ASX 200

Miners are advancing, with the ASX 300 Metals & Mining Index breaking resistance at 3300.

ASX 300 Metals & Mining Index

The ASX 300 Banks Index is headed for a test of 8800. Upward breakout would complete a bullish outlook for the ASX 200.

ASX 300 Banks Index

Bank rally boosts the ASX

Banks rallied, with the ASX 300 Banks index breaking 8500 to signal another test of resistance at 8800. Breakout above 8800 would signal resumption of the primary up-trend but expect retracement to first test the new support level. I will remain wary of banks until the support level is respected.

ASX 300 Banks

The bank rally helped to lift the ASX 200 above resistance at 5800 — from the narrow ‘line’ formed over the last four months. Breakout signals another primary advance but again wait for retracement to respect the new support level. Respect would confirm a test of the 2015 high at 6000. Twiggs Money Flow peaks below zero still warn of long-term selling pressure. Reversal below 5800 would mean all bets are off.

ASX 200

On a more bearish note, iron ore is heading for a test of primary support at $53. Declining Twiggs Trend Index signals selling pressure. Breach of primary support would spell trouble for the miners.

Iron ore

The ASX 300 Metals & Mining index rally continues but another test of 3100 is likely. Breach of 3100 would most likely drag the ASX 200 (and banks) lower.

ASX 300 Metals and Mining

ASX 200 finds support

The ASX 200 found support on Friday after threatening to break support at 5650 earlier in the week. The narrow ‘line’ formed over the last four months continues. Twiggs Money Flow peaks below zero still warn of long-term selling pressure. Breach of support at 5650 remains likely and would signal a primary decline. Breach of support at 5650 would confirm.

ASX 200

Iron ore broke short-term support at $62, signaling a test of primary support at $53. Declining Twiggs Trend Index signals selling pressure.

Iron ore

Strangely, the ASX 300 Metals & Mining index rallied. Breakout above 3300 would confirm a primary up-trend.

ASX 300 Metals and Mining

The ASX 300 Banks index are a major drag on the ASX 200 broad market index. See Australian Banks Under Selling Pressure.

ASX 200 selling pressure continues

Iron ore found short-term support at $62 after a sharp fall. Declining Twiggs Trend Index signals selling pressure. Breach of $62 is likely and would warn of a test of the June 2017 low at $53.

Iron ore

Decline of ASX 300 Metals & Mining index similarly halted at 3100. Respect of 3000 would confirm the long-term up-trend.

ASX 300 Metals and Mining

The ASX 300 Banks index is consolidating below resistance at 8500. Respect of resistance would be a bearish sign, as would another Trend Index peak below zero. Breach of 8000 would signal a primary down-trend.

ASX 300 Banks

The ASX 200 continues to test support at 5650, in the narrow ‘line’ formed over the last four months. Trend Index peaks below zero warn of selling pressure. Breach of support at 5650 is likely and would signal a primary decline. But wait for breakout to confirm.

ASX 200

ASX 200 selling pressure as iron ore corrects

Iron ore penetrated its rising trendline, signaling a correction. A trough that forms above the June 2017 low would be bullish for miners.

Iron ore

That seems likely given rising crude steel output in China.

China Output

The ASX 300 Metals & Mining index is testing support at 3200. Breach is likely and would signal a test of 3000. But respect of 3000 would confirm the long-term up-trend.

ASX 300 Metals and Mining

The ASX 300 Banks index rallied off support at 8000. Respect of resistance at 8500 would be a bearish sign and breach of 8000 would signal a primary down-trend. Recovery above 8800 is unlikely at present but would complete a double-bottom reversal.

ASX 300 Banks

The ASX 200 continues to consolidate in a narrow line between 5650 and 5800 but the tall shadow on this week’s candle and Twiggs Trend Index troughs below zero both warn of selling pressure. Breach of support would signal a primary decline, but direction remains uncertain until there is a clear breakout.

ASX 200

ASX miners surge

ASX 300 Metals & Mining broke through resistance at its January/February highs, signaling a primary advance.

ASX 300 Metals & Mining

But iron ore penetrated its rising trendline, suggesting that the rally is losing momentum. The next correction is likely to end above primary support (53). It may be prudent to wait for confirmation from iron ore before going all out on miners.

Iron Ore

The ASX 300 Banks index is headed in the opposite direction and continues to drag on the broad market index. Declining Twiggs Money Flow warns of selling pressure. Expect another test of primary support at 8000; breach would confirm a primary down-trend.

ASX 300 Banks

The ASX 200, pulled in both directions, continues to consolidate in a narrow line between 5650 and 5800. Rising Twiggs Money Flow (21-day) indicates short-term buying pressure and a test of resistance at 5800 is likely. Breakout from the narrow line will signal a primary advance or decline, but direction remains unclear despite the bullish movement from miners.

ASX 200

ASX Improves

The ASX 200 continues to consolidate in a narrow line between 5650 and 5800. Rising Twiggs Money Flow (21-day) warns of short-term buying pressure. Expect a test of resistance at 5800. Breakout would signal a primary advance, testing 6000, but breach of support at 5650 remains as likely and would warn of a primary down-trend.

ASX 200

The large cap ASX 50 is historically less volatile than its S&P 500 counter-part. While the Australian index has some smaller stocks (lowest-weight IPL has market cap of $5.7 bn compared to S&P 500 NWS of $10 bn in AUD) the higher dividend yield tends to compensate. That difference has reversed recently but Twiggs Volatility (21-day) for the ASX 50 is also falling, reaching 0.92% this week.

ASX 50 with Twiggs Volatility

Currency growth remains weak (below 5% per year), indicating that the economy still faces headwinds.

Australia: Currency Growth

Iron ore continues its extended bear market rally. The next correction is likely to find support above the primary level at 53.

Iron Ore

ASX 300 Metals & Mining is testing resistance at its January/February highs. Breakout above 3240 would signal a primary advance. Expect some profit-taking but reversal below primary support at 2730 is now unlikely.

ASX 300 Metals & Mining

The ASX 300 Banks index breached support at 8500, however, and continues to drag on the broad market index. Declining Twiggs Money Flow warns of selling pressure. Follow-through below 8400 would confirm another test of primary support at 8000.

ASX 300 Banks

ASX banks spoil the iron ore party

I underestimated the strength of iron ore which has now broken resistance at 70, suggesting that a bottom is forming. Strength of the latest rally indicates that the next correction is likely to find support at 60.

Iron Ore

The Resources sector responded, with the ASX 300 Metals & Mining index headed for a test of its February high at 3200 after recovering above support at 3000.

ASX 300 Metals & Mining

Banks have been on the receiving end, however, with the ASX 300 Banks index testing short-term support at 8500. A Twiggs Money Flow peak below zero warns of strong selling pressure. Breach of 8500 would signal another test of primary support at 8000.

ASX 300 Banks

The ASX 200 continues to form a narrow line, consolidating between 5600 and 5800. Declining Twiggs Money Flow, with a peak below zero, warns of selling pressure. Breach of support at 5600 remains likely, despite the iron ore rally, and would signal a primary down-trend.

ASX 200

ASX stalls

Iron ore is testing resistance at 70. Respect would warn of another test of primary support at 53, while breakout would suggest that a bottom is forming and the next correction is likely to find support at 60.

Iron Ore

The Resources sector remains wary, with the ASX 300 Metals & Mining index retreating after a false break above resistance at 3050.

ASX 300 Metals & Mining

The ASX 300 Banks index retraced from resistance at 8800, heading for a test of the rising trendline and short-term support at 8500. Twiggs Money Flow continues to warn of selling pressure despite indications from APRA that they are unlikely to require further capital raising. Reversal below 8500 would warn of another test of primary support at 8000.

ASX 300 Banks

The ASX 200 has stalled, consolidating between 5600 and 5800 over the last two months. Declining Twiggs Money Flow, with a peak below zero, warns of selling pressure. Breach of support at 5600 is more likely, with an ensuing down-trend, but a lot depends on how iron ore behaves in the next few weeks.

ASX 200

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

~ Mark Twain (Samuel Clemens)

ASX buoyant as iron rallies

Iron ore broke resistance at $60 and is headed for a test of $70 per ton. This is a strong rally but it does not signal the end of the bear market. Only when the rally ends and there is another test of primary support at $53 will we be able to gauge long-term sentiment.

Iron Ore

The ASX 300 Metals & Mining index broke resistance at 3000, completing a double bottom reversal with a target of 3250. Breach of 2750 is unlikely at present but would signal a primary down-trend.

ASX 300 Metals & Mining

The ASX 300 Banks index is testing resistance at 8500 but Twiggs Money Flow below zero continues to warn of long-term selling pressure. Breach of 8000 remains likely and would confirm the primary down-trend.

ASX 300 Banks

The ASX 200 is consolidating in a small triangle (some would call this a large pennant) between 5600 and 5800. Breakout will signal future direction. A lot will depend on iron ore (China) and the banks, which seem to be pulling in opposite directions at present.

ASX 200

ASX 200: Banks run into strong resistance

Iron ore peaked at $60. Expect a sharp fall to test support between $50 and $52, typical of a bear market. Chinese housing price growth — a key driver of iron ore prices as illustrated last week — is slowing and likely to drag ore prices lower.

Iron Ore

The ASX 300 Metals & Mining index is still on the up but likely to respect resistance at 3000, given the reversal in iron ore. Breach of 2750 would confirm a primary down-trend.

ASX 300 Metals & Mining

The ASX 300 Banks index ran into strong resistance at 8500. Declining Twiggs Money Flow highlights selling pressure. Breach of 8000 is likely and would confirm the primary down-trend.

ASX 300 Banks

The ASX 200 displays strong selling pressure, with tall shadows on the last two weekly candles. Twiggs Money Flow dipping below zero for the second time warns of a primary down-trend. Follow-through below 5700 would test primary support at 5600. Breach of 5600 would complete a broad head and shoulders reversal, confirming a primary down-trend.

ASX 200