Key Shift In ASX 200 Indicator | Gold & Uranium | Episode 103

By Jason McIntosh | Published 27 January 2023

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 stocks, 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 Heading?

00:00 Intro

00:28 Be ready for THIS in the ASX 200

04:59 Here’s how I’m approaching new positions

05:26 This is what to look for in the Small Ordinaries

08:42 Important developments in gold (I’ll be doing this)

13:22 Copper could be setting-up an opportunity

13:55 Uranium rebounds off support (what next)

Transcript

Please note: Charts available from video

This video is going to focus on the ASX 200 and ASX stocks. I’m also going to have a look at gold and uranium, so make sure you stick around for that. I’m going to cover the S&P 500 in a separate video, and I’ll leave a link for that in the description section below. As always, this is general commentary and doesn’t take your personal situation into account. With all of that said, let’s get over to that first chart.

It’s been another positive week for the ASX 200, but I’ve got to say it really is looking stretched. It’s looking stretched when I look at these moving averages. It’s really starting to get away from it. So, while I think this overall structure looks encouraging, I just can’t ignore how far the index has now moved away from its moving averages. And the way this works, a market can sprint away from the moving averages for a period of time, but at some point, it always needs to needs to pause and allow the moving averages to catch up.

And that can happen in multiple ways. A market can just trade sideways for a period of time and the averages will continue to rise, or it can be more like this period in November where the market actually pulled back over a few weeks towards moving averages. No way to tell which one is going to be with any certainty, but I do think we need to be prepared for the possibility that we get some consolidation in the ASX 200.

And also being mindful that this is off the lows from January. That’s a 9% rally in just four weeks. That’s a big move. And we’re also now only 2.5% below a significant resistance point at around 7600 where we have this triple top resistance at the all-time highs. So, I would not describe this as an asymmetric entry point. So, asymmetric is where your relative upside is significantly greater than your relative downside. It doesn’t strike me as a terrific point to be buying the index just here and now.

And another thing I want to do, I want to add on a rate of change. I want to add on an indicator called a Rate of Change Indicator. And this is interesting as well because when we do this, you can see that we’re starting to get some divergence occur. So, divergence is where the index itself is rising then you come down and you look at the rate of change and you see the rate of change is declining. So, when you see that, it can be a sign of at least some sort of a short-term or a near-term pause or weakness in the market.

And we saw something similar happen over here in August where we started to see a decline in the rate of change while the market was rising. And we also saw it just recently just through…where was it? November where we started to see the rate of change started to come off but, of course, the index continued to rise before, of course, the pullback came in. So, yeah, I think it just increases the odds that we are going to get some pullback towards these moving averages maybe over the next few weeks.

And just to give you an idea, so let’s just take that off. Just having an idea of where a pullback could come to. It’s interesting to look at the Fibonacci retracements. So, for instance, just seeing how the rally from the September lows worked. You can see how the market pulled back to around the 50% mark. We measured from the low point to the high point of the rally, the pullback came back. This is a Fibonacci region. Came back towards the 50% mark. So, if the ASX 200 were to top today, if that were the top, of course, we don’t know, maybe it goes a bit higher next week, maybe it continues high, we just don’t know. But if, for example, it were a peak there, a potential target region for a pullback, it could be within this Fibonacci retracement region measuring from the low point to maybe the high point. That could bring the market.

And this top of the Fibonacci band would probably equate to where the moving average may be sometime next week. So, that’s the pullback potential which I think we have in the local market. I think it’s a case here of… Really, I think it’s now a case of just being patient with entering new positions. There probably isn’t a need to chase most stocks at this particular moment in time as we could… I think, yeah, as I’ve been saying, there’s a potential for a general pullback maybe over the next several weeks. That’s how I think the risk-reward dynamic is shaping up.

Interesting to have a look at the small ordinaries. It’s another positive week for the small ordinaries. And it’s closing in on this resistance region at around 3100. Made further headway through the week getting up towards that resistance point. And like the ASX 200, it’s now 10% of its lows from earlier in January. And so this is one of those natural points. We’re coming up to resistance. We’ve had a big run. We’re not too far above the moving averages but we are starting to pull away a bit. So, it’s one of those natural points where some consolidation is very possible. And we see how that consolidation looks, if it’s constructive, if it’s fairly flattened nature moving sideways within, that potentially sets up a launching pad for another move higher and maybe a break through this resistance point. That’s probably not the play for the next few weeks. Maybe we’re looking at some sort of a pause.

I think the overall structure remains encouraging. We’re above these moving averages. The moving averages have crossed and are turning higher. So, the 50-day is rising above the 100-day. And as I say, my hesitation is similar to that of the ASX 200. I just think we’re getting close to some sort of a pause. That doesn’t mean I’m looking to hedge stocks or get out of stuff. It just means that maybe there’s some patience needed, and I’m going to be as always selective of what I buy and I probably don’t feel there’s a hurry to chase anything which is run which I wanted to get. There could be a buy-the-dip opportunity and then a rebound off the potential dip to get set in some stocks.

And as I’ve been saying the last few weeks, I’m interested in the individual setups. I’m looking for those stocks with a positive momentum breaking up from basing formations. This could be a big basing formation in its own right, stacks up with how a lot of the small to mid-cap stocks I’m looking at are appearing at the moment. I’ve seen a lot of signals over the last four weeks, but maybe we’re going to see a pause in those signals as we head into February. We’ll, yeah, just have to see how that starts to play out over the next few weeks. But at the moment, overall, I want to play this momentum to the upside. We’ve got upside momentum. I want to play from the long side but, of course, with caution as it always is with risk management, with exit strategies in case things do start to roll over and turn down. You’ve got to have an exit strategy I think to give yourself the best chance of protecting capital and doing well over time.

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So, now let’s move over to gold. Really interesting stuff going on with gold. Now, you’ll know from the last few weeks I’ve been saying the overall structure I think looks really good. I like gold from a medium to longer-term standpoint. But I think a pause in this trend that we’ve had over the last couple of months now, I think we’re getting really close. I think we’re getting close to this trend pausing. Market really just seems to be grinding over the last couple of weeks. It’s struggling to really make any new headway.

And what I want to do, I want to go over to an hourly chart, really break this down on a finer detail. And so this strong upward momentum we had earlier in the month, say around middle of the month, we had really strong upward momentum. Looking at the price action over the last couple of weeks, it’s really starting to become quite overlapped. It’s lost its impulsiveness. What we can also do, we can draw in. It appears to me we’ve got a bit of a bearish wedging formation which has been racing out. Just draw that in. Look at this, a bearish wedge. Bearish wedge is where the price action starts to become overlapped, which it has, and it starts to lose its upward momentum, which I think we can say this has. And then the breakdown happens when you get below this lower trend line which seems to be happening at the moment on the hourly basis.

And also on an hourly basis, looking at these moving averages. So, this is on an hourly basis. This is a 50 and a 100-hour moving average. They’re now above the market. So, the price is now below these moving averages hourly basis. So, I stress, it’s not a daily basis. That’s the main one I’ll look at just on a shorter-term basis. It does appear that I think there’s some downside potential in gold. So, I’m not talking about a big sell-off. I’m talking about a pause in the trend, a correction of this big rally that we’ve had over the last month.

And just going back to the daily chart on this gold price. Another thing I want to do is I want to throw on another rate of change indicator. And when we look at the rate of change indicator in gold, it’s interesting in that… Just clear up that little wedging formation. So, the gold has been rising, but when you look down at the rate of change, you can see it’s really started to drop away. So, for me, that’s a sign that this market is quickly losing its momentum. And I think that this pullback that I’ve spoken about for a couple of weeks now, you could really see this start to pull back, or at least, I don’t know, maybe it’s a case of just doing some sideways work and then maybe it tries to rally again. Maybe we get more of a pullback lower. I don’t know, but I think we do look for this momentum to pause, and then that could open up new opportunities to get into some of the gold stocks which maybe you want to add to, maybe you want to buy which you don’t already have. This could be the setup for that.

But, well, of course, we’ll want to see how this pullback develops. What does it look like? Does it look like we’re getting buy the dip coming in? Is there accumulation on the pullback? These are all the things to watch over the next several weeks if, of course, that is what happens if we do get some… Maybe gold could continue to extend higher. It’s entirely possible. But I think the odds are now favoring we do get the consolidation. I think the strategy is simple. I think, for me, it’s about holding the gold stocks I have. I don’t want to get too clever. I don’t want to say, “Gold is peaking. I’m going to take some profit. I’m going to buy back later on,” because sometimes you get it wrong. And I get it wrong and the price doesn’t pull back. It keeps going. So, I don’t want to be too clever.

Sell stuff which has been in an upward trend which remains in an upward trend. Trying to finesse my profits, trying to lock in a bid here, get back in, ride another trend. It’s all too clever. People who do that, they end up missing out on really big trends. So, I think it’s a case of not trying to trade in and out, not trying to get too smart about trying to get the maximum, every dollar you can out of the trend. I think you make the gain by staying with the trend, not trading in and out.

To wrap up, a quick look at copper. Copper is similar to gold. We’ve had this big run off the January low. Looks to be stalling. I think it opens the possibility for a pullback. Maybe it comes back towards this big support region now at four dollars. So, this used to be a resistance we’ve been watching. Copper had been trading below the resistance region, broke above it. The resistance then becomes support. So, maybe we get some pullback there. Could open opportunities in the copper stocks.

And lastly, uranium. Uranium had a good week. So, we were talking about uranium last week. We were talking about how this may be an asymmetric entry point. We had the pull back to the moving averages, the moving averages had crossed, were turning higher. We did get that rebound. We got the rebound. We got the classic buy-the-dip rebound off the moving averages in uranium.

I really like the uranium setup over the medium to longer term. Whether now is the time is actually going to really take off, I don’t know, but that’s the side I want to be playing uranium. I want to be playing the momentum when uranium is running. And so if I were looking at uranium stocks, now is the time I’d be looking to potentially get some extra uranium stock on board. I’m already in uranium. I’m being in there for a while, which you probably know through the videos. But this is encouraging price action.

So, let’s call that a wrap for the week. Let’s leave it there. Thank you for joining me. Hopefully, that’s been interesting giving you a few new ideas. Thanks, as always, for joining me, and I look forward to coming back and talking to you next week.

Please see video for more details analysis and charts

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