ASX 200 Set To Rally Should You Buy The Dip | Episode 128

By Jason McIntosh | Published 5 May 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

00:30 Is this a “buy the dip” moment in the ASX 200?

02:30 Look what the Small Ords just did

04:00 Two big lessons from last week (this is so important)

07:24 Is it time to double up on gold?

10:04 Copper enters a vulnerable zone

11:08 The latest on uranium

Transcript

Please note: Charts available from video

This video is going to focus on the ASX 200. I’m also going to have a look at gold, copper, and uranium, so make sure you stick around for that. I’m going to cover the S&P 500 in a separate video (you can view that here). As always, this is general commentary. It doesn’t take your personal situation into account. With all of that said, let’s get into our first chart.

And we’ve got the ASX 200 up on the screen. And last week, I was saying that I thought the best-case scenario for the market was a shallow consolidation. We have had a bit of a consolidation. It hasn’t quite been shallow but nonetheless, I think it is still looking constructive overall. And what we’ve had, we’ve had the market pull back towards the moving averages. So, we’ve got the 50 and the 100-day moving averages.

And another thing we can do is we can put on some Fibonacci retracements of the rally off the low we had in March. And what we see, the market has come right back to the upper end of the Fibonacci region and we’re also now getting a bounce from the Fibonacci region. So, that’s a positive sign. And this is exactly where we’d want buy the dip starting to come in and support this pullback. Ideally, the market would hold this week’s low and then consolidate further perhaps, and then start to rebound. So, we just need to see, need to watch how this plays out probably over the next week or so. And I think the key really is getting back above these moving averages, getting back above the 100 and then the 50-day moving average and staying there for a bit. That’s the underpinnings of a healthy market, a market which is trading above those key moving averages.

And what I would say is we are still in the middle of a big trading range, so it’s not a time for big bets. It’s just one of those periods which are difficult and we just got to continue to see it out. So, some encouraging price action overall, but nothing to get excited about yet because we are still in this range.

Now, one thing which has been positive this week has been the Small Ordinaries, the ASX Small Ordinaries. And what I’ve liked about this is that the pullback so far has been shallow. Unlike the ASX 200 which had a steeper fall on the rate hike this week, the Small Ordinaries has actually held in relatively well.

And let’s come back to the moving averages. And we’re starting to get that rebound off the moving averages. So, it actually has been outperforming the larger stocks over the last week. The question remains, and this is a big question which we have no answer to yet, is this a large basing pattern in the Small Ordinaries? It certainly has the look of it, it has the structure which would support a basing-type pattern, which you could then see the market breaking higher from and rallying. So, it does have that look. But whilst we’re in the middle of the range, you can’t be sure of that because you’ll never be sure which way a market will break from a trading range.

So, the best-case scenario, this is a large basing pattern that prices will turn higher from. But again, we just need to watch. It’s one of those periods where it’s being patient, it’s being careful, it’s being cautious, and protecting capital, making sure you’ve got plenty of capital ready to go when we do get those breakouts, when we do get trending markets. And really, for me, it’s a case of continuing to look for opportunities on a stock-by-stock basis. And there are stocks breaking out, and there are interesting opportunities out there. It’s a case of going through and looking at them on that case-by-case basis.

Now, just looking at a couple of stocks from this week which have been interesting. NAB, National Australia Bank. So, it had some… It surprised the market with some results which were below expectation. And, of course, the market’s fallen away. Now, this is just one of those reasons why I say being careful of stocks when they’re trading below moving averages. So, NAB had been below the moving averages, and as I often say, that’s when a lot of the bad stuff tends to happen. You tend to get the negative surprises when stocks are below moving averages. So, this is why I don’t like buying stocks as they’re declining. And I’m wary about buying stocks when they have a bounce off their low because sometimes it’s just a temporary reprieve before you get another decline. I’d rather wait for situations above the moving averages.

Back over here, back in late 2000 to ’21, we had NAB share price trending above those moving averages. That’s the time where the money is there to be made. You get periods where we’d break above averages and come back below them. That’s part of the game. But that’s where you protect your capital and you make your capital make you profits when markets are trending above moving averages, not trying to punt lows. That said though, the moving averages are no guarantee of success.

This is another stock from the week, which made the headlines, oOh!media. Now, this happened to be one of my Motion Trader stocks which I’ve been following. We had moving averages cross back in January. We had a break to 70-day highs. We had the conditions of a trending market. And within a day of the stock making a new…I think that was a 14-month high, we then had a reversal, then we had a surprise announcement from management, and the stock gapped lower. So, there are no guarantees in this market, and this is why it’s so important to practice good risk management, good position size, spreading risk. It’s not about big bets. Big bets leave you vulnerable to blindsides. And this is what’s happened in oOh!media.

So, moving averages aren’t magic. They don’t guarantee success, but they can help you get in stocks when they’re rising. But you still got to have good risk management strategies in place to protect yourself from these adverse events which can happen at any time when you play the stock market. It’s one of the risks of being in the market. So, protect capital and stay in the game.

Now, I’ll have a look at some of these commodities in a moment, but first of all, if you’re getting some value, please hit that like button. Leave a short comment, “Hey, just thanks for the video,” something like that. It tells YouTube you’re watching, you’re engaging. YouTube does its thing and shows other people. Also, hit that subscribe button. And visit me over at motiontrader.com.au and see if the work I’m doing with trend analysis might be able to help with what you’re doing with your portfolio.

Now, let’s jump over to gold. A good week, another positive week in gold. And it’s right up here, right, testing this resistance from this big double top we have up at the all-time highs. It’s a really interesting setup, a really interesting time. Had a big run from the October lows. And is gold going to get through 2080-ish? Time will tell. I still continue to think that it’s going to take more work before it punches through, but hey, I don’t know. This market could run and keep going. And this is why I say don’t mess with momentum. Don’t be trying to take profits and buy back at lower prices because sometimes these markets just can keep running.

I’ve been holding gold stocks the whole way up. I continue to do so. I hadn’t been adding the positions for a while because I’ve been waiting for this larger consolidation. And I still don’t think this is an asymmetric entry point. That said, the market keeps going. So, it’s a case, for me, holding what I’ve got, and I’ll just have to watch what this price action does over the new term.

One thing which is interesting to have a look at, just throwing on a Relative Strength Index, an RSI. So, the wrong one on there. So, this is an RSI. So, just having a look at this. What you can see is we’ve got a situation where we have some negative divergence. You can see the RSI hasn’t been able to regain the highs from March and it’s been declining where we’ve got the gold price which is making new highs. So, that’s divergence. That’s one of the things we look for for a market which may be losing some momentum.

And then just a thing, just one thing to be aware of divergence is divergence doesn’t always work. It’s just something to keep an eye on. So, we had a situation back in November where you could see divergence was creeping in and the gold price was rising, but then the gold price just accelerated through and the divergence disappeared. So, that can happen with divergence. It’s one of those warning signs, particularly when you’ve got the market up at a big resistance point. But let’s wait and see what happens. And keep watching this space. It’s a really interesting area.

Want to have a quick look at copper. I’ve had some people ask me about copper. Copper remains in a trading range. It’s just been trending sideways, consolidating over the last few months now. Bit of vulnerability creeping in with the price sitting below these moving averages. The moving averages are also starting to roll over. This could still just be part of a broader consolidation, but I’d be hesitant to buying into copper plays just at the moment, just till we see how this works out. If this is going to be a case where the price does start to give way and fall back, or is it going to find support around this previous low and rebound back within the range? Ideally, I’d like to see copper break above this previous high point, this high from April before getting interested again and going with the momentum. So, copper is, for me, a bit of a wait-and-see with it just also declining below this four-dollar region.

And lastly, just going to have a look at uranium. Generally a positive week. We had this pop higher the previous week. Uranium’s pulled back just towards the top of this previous range, back to support. We can put the moving averages on, and just pulling back to the moving averages. So, overall, I think uranium’s looking interesting. It’s looking encouraging, but it’s still in this big range. So, it’s not really a go-to play for this time. But it is encouraging to see that it’s moving back up towards that top of the range. And let’s see what it does. Let’s see if we can start getting a move back up where we can test this resistance, maybe get a breakout. I think it’ll happen at some point, but it’s just being patient, waiting. Let the price action tell you the timing.

So, let’s leave it there for this week. Let’s call that a wrap. Thank you for joining me. Great talking to you again. I look forward to coming back and talking to you next week. Till then, bye for now.

Please see video for more detailed analysis and charts

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