ASX 200 at Record Highs: Essential Technical Analysis | Episode 255

By Jason McIntosh | 19 October 2024

ASX 200 Continues to Set New All-Time Highs: A Closer Look at Market Trends

The Australian Securities Exchange (ASX) 200 index has been on an impressive run, setting new all-time highs since February. This trend continued with another record high on Thursday, despite a slight pullback. Let’s analyze the current market situation and what it means for investors.

The Pattern of New Highs

Since February, the ASX 200 has been consistently reaching new heights. However, this doesn’t mean we’ve seen new records every day. The market has experienced several consolidation periods:

1. A prolonged sideways movement between April and July
2. Shorter, sharper pullbacks, such as the notable decline in August

These consolidation phases are a normal and healthy part of an upward trend. They act as counterbalances to previous gains, allowing the market to work off earlier advances and create a more sustainable upward movement.

Why Current Market Behavior is Positive

The current market behavior is encouraging for several reasons:

1. Absence of Euphoria: Unlike periods of near-vertical price increases driven by excitement and speculation, the current market doesn’t show signs of irrational exuberance.
2. Persistent Disbelief: There’s still a fair amount of skepticism about the rally in the media, which is often a positive sign for sustainability.
3. Strong Support Levels: The market has shown good buying interest on dips, with prices holding above the 8,100 support level.

Key Sectors Driving Growth

Two crucial sectors are showing strength, contributing to the overall market performance:

1. Financials

The ASX 200 Financials ETF has been rallying off its 50-day and 100-day moving averages. This classic bullish price action involves periods of rallying, consolidation, and then rising off the moving averages.

2. Materials

The materials sector, which had been a drag on the market for much of the year, is showing signs of a potential new trend. It has recently moved from below its moving averages to above them, setting up the possibility for further gains.

Equal Weight Index Insights

The ASX 200 Equal Weight Index hit a 2.5-year high on Thursday and is close to reaching a new all-time high. This indicates broad participation in the rally, not just led by a few large-cap stocks. Such broad-based rallies are typically seen in healthy uptrends.

What to Expect Moving Forward

While the trend remains positive, investors should be prepared for:

1. Periods of consolidation
2. Potential pullbacks towards moving averages
3. Sideways or zigzag movements

These are normal parts of a healthy market cycle and often set the stage for further advances.

When examining the price action of both the ASX 200 and its equal-weight counterpart, we observe a bullish structure characterized by rising moving averages with prices consistently above these averages. This pattern suggests that the optimal approach continues to be from the long side of the market.

Effective Portfolio Management with Trailing Stops

As an active investor, I employ wide trailing stops as a crucial tool in my investment strategy. These stops offer several advantages:

1. Emotion-Free Decision Making: Trailing stops help remove emotional bias from trading decisions, allowing for more consistent and effective portfolio management.
2. Riding Out Short-Term Volatility: Wide stops enable investors to weather brief periods of market turbulence, such as the August sell-off, without being prematurely shaken out of positions.
3. Capturing Long-Term Trends: By staying invested in performing stocks for extended periods, investors can capitalize on substantial rallies that often account for the majority of portfolio gains.
4. Automatic Risk Management: When significant trend changes occur, as seen in 2022, trailing stops automatically trigger exits, protecting capital during major market shifts.

The Power of Concentrated Gains

In my experience, a relatively small group of stocks within a portfolio often contribute disproportionately to overall returns. By using wide trailing stops, investors can:

• Allow winning positions to run their course
• Maximize gains from top-performing stocks
• Minimize losses on underperforming positions

This approach enables investors to stay aligned with market trends while maintaining a disciplined risk management strategy. It’s particularly effective in bullish market structures like the one we’re currently observing in the ASX 200.In conclusion, the combination of a bullish market structure and a well-executed trailing stop strategy can provide a robust framework for navigating the current market environment. This approach allows investors to participate in potential upside while maintaining prudent risk management practices.

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ASX Strategy Session Video

00:00 Overview: today’s ASX 200 technical analysis

00:50 ASX 200’s record highs: This is when I start worrying

03:10 Decoding the latest market pullback: Critical Insights

03:55 Two sector shifts that really matter

07:05 Market surprise: Many people didn’t expect this so soon

08:00 Key takeaway: What recent price action says about ASX 200

09:35 Unveiling a must-have strategy for ASX success

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[11:45] Is Small Ords rapid rise about to end? (I’m doing this)

[14:35] Emerging companies rally: What I got wrong

[16:45] What you need to know about gold’s increasing risk

[21:20] Essential insights for gold investors: Don’t miss this

[24:05] Is copper’s pullback a buying opportunity?

[27:40] Why oil’s price action poses extra risk

[28:55] Uranium bulls need to see what these 2 stocks are doing

[33:30] Stock spotlight 1: Low profile software stock with textbook setup

[38:20] Stock spotlight 2: Small cap with fast revenue growth

[43:50] Q&A session: Diverse stock ideas and market insights

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.