ASX Stocks Surprise Investors | Episode 93

By Jason McIntosh | Published 16 December 2022

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 shares, 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 Going?

00:00 Intro

00:30 ASX200 closes in on the moving averages (what next)

02:42 Look at what the ASX200 Equal Weight index is doing

07:24 Don’t miss the great Motion Trader Christmas Special!

07:54 Is the breakout in gold and gold stocks for real?

11:28 Uranium investors should consider this

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 the latest developments in gold, 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 into our first chart.

So, we have the ASX 200 up on the screen. And ASX 200 has really held together quite well over the last week. My focus over the last…I think it’s been the last three weeks now has been the potential for a pullback and a consolidation after this strong rally. We had off-the-lows back in September. So, this was a 15% rally in two months. And what that did, the market got quite stretched above these moving averages. So, the point which I’ve been making is market stretched above the moving averages and often pulls back towards them, often retests them. And that’s what we’ve been seeing make shape over the last couple of weeks. These moving averages are now getting quite close to whether ASX 200 is actually trading. And that’s often the case. Big rallies need to be checked. That’s the case now.

And we’ve also got this resistance band. Comes in around 7200. You can see it’s been technically active region going back to around April last year. And whilst it’s not a perfect fit, it has overshot on this occasion as it has overshot back here in February. And got a little bit of an undershoot last ’21, broke through, and then back through there. So, it’s not a perfect region, but it does show there’s areas where the market does tend to find support and resistance. And that’s what we’re seeing now. I think it remains a case of watching how this pullback continues to develop. And for me, it’s also just about focusing on the individual stocks and looking to the individual stocks with positive setups. Whilst we do have the market in this broadly positive phase, I don’t think it’s a case of buy anything. I think it’s being selective and looking for the stocks which are trading above their moving averages and which are breaking out to new highs.

And it’s also interesting to have a look at the ASX 200 equal-weighted index. So, of course, the ASX 200 is capitalized weighted, so BHP being the biggest stock has the most influence. When you look at an equal-weighted index, each of the 200 stocks are weighted the same, so the smaller stock moves the market as much as the biggest stock. And what’s been interesting with this is we had this breakout from a trend line. That was back in mid-November, around the 11th of November, this trend line going back to January. Three points in the trend line, so a significant trend line. So, we had the breakout above that, which was the first positive sign maybe this market was starting to try and turn around. Initial rally, and then we’ve had the pullback. And that’s often what you get when you get a break from a trading range or a breakout of a trend channel and you get what we call a return mover. It comes back and tests around that point where the breakout was. So, you can see today’s low, Friday’s low pretty much around that breakout point. Also coincides with where these moving averages are. Moving averages have crossed and turned higher, so some positive signs there.

What’s been interesting, if you just look at today’s price range, so this is where the market is closing. It’s close to near the close. So, it’s almost 3:00 p.m. Sydney time on Friday afternoon and the market is getting up near its high for the day after breaking to an interim low, breaking to a low during the day, and then strongly rebounding. What’s interesting, though, is this is a day when the U.S. market is down something like 2% overnight. So, the fact that the equal-weighted index…and we’re seeing the same price action in the small ordinaries as well. The fact that it’s been able to sell off, rebound on a date which often would have resulted in significant and sustained losses I think is an encouraging sign.

It’s also behaving quite differently to what we saw during August and September. So, you can see these down days that we had during August and September, they closed near their lows. These are like days when the market is closing down near its lows. Quite different to what we’re seeing at the moment. So, the type of price action we’re seeing now is a lot more encouraging than what we had just several months ago. I think that if this market, if the equal-weighted index and the S&P 200 generally continue to consolidate around current levels, well, then the next target does become this resistance area up around 1830. And you can see this dates back to December 2000 where there’s been some activity around this level. Not perfect, by any means, but a lot of resistance levels aren’t. We can just see this is an area of consistent activity from the market where it does tend to get reaction points. So, this will be the area to watch if the market can consolidate these gains and then try and push higher.

So, for me, it remains a case of holding onto the positions I have, the individual stocks that I have that remained in their broad upward trends, and looking to buy stocks which are above their moving averages and making new highs. And also still got plenty of cash on the sidelines. So, it’s a case of moving forward cautiously but moving forward. I think that’s the key part. It’s not just bunkering down and waiting for the worst because often the worst doesn’t happen and you’re left in the bunker while the world moves on. We don’t know what’s going to happen but it’s about treading cautiously forward using momentum when we have it to try and guide and manage our decisions.

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Now, let’s have a look at gold. Let’s move over to gold because that’s been also very interesting this week. So, last week, you’d remember I’ve been talking about…probably the last couple of weeks really, I’ve been talking about a pullback. So, often when a market goes from below its moving averages, charges higher, and crosses above the moving averages, we get a pullback. We did get an initial pullback in November, then a quick rally, and now we’ve got some more consolidation going on. So, that’s all very normal stuff that we often see in what could be a developing trend. I think the overall structure remains positive. These moving averages have now crossed. The 50-day average is above the 100-day average, so that’s a positive sign. There still remains a possibility that this does continue to consolidate the near term, but I think at the moment, we’ve got to say this is looking encouraging. It’s the best gold has looked. You’ve got to go back over here, back to February. Find a time when gold has looked at least as promising.

Looking at some of the gold stocks is an interesting exercise. Really interested in how they’ve traded today. So, this is Evolution Mining on the screen now. Like I was saying with the equal-weighted index, gold lost some ground last night. So, gold had some selling last night. Evolution opened down a few percent at the open, sold a bit more, but now it’s looking like closing the day up near its high. Now that’s positive. And I’m seeing the same price action amongst the other gold stocks as well like Northern Star on Newcrest. They’ve got the same price action today. These moving averages are also close to crossing. So, it starts to set up a structurally more positive chart than we’ve had for most of this year, Evolution and gold stocks generally.

I like how they’re looking generally. I have exposure to the gold stocks, and I’d like to get some more, but I’m also mindful that they’re not as stretched above their moving averages as they were. That has come back a bit, so that’s positive. But I’m also just wary not to get too enthusiastic about gold stocks too quickly because they do have the tendency to be quite volatile in the way that they can pull back after these initial runs. There’s also some resistance which is…it’s still a bit ahead of the market, but you can find this on all the gold stocks. So, just putting some in on Evolution. So, this comes in at around $3.40. So, that’s what the market has ahead of itself. So, if the market were to quickly rally back up, you’d expect to get some resistance above current levels.

And you see the same thing on Northern Star. Well, so there’s some resistance I’ve already got drawn in that comes in around $11.80. So, again, you’ve got this positive price action today, opened low, traded lower, closing higher, so it’s good. Still a bit above those moving averages, so there’s still the potential of some consolidation. So, I like this sector. I think it’s one which I want to have exposure to. It’s now looking at the right timing and trying to get the right timing in place to add to existing positions.

Now, I’m just going to have a very quick look at uranium. I haven’t looked at this for a couple of months. A couple of months ago I was talking about uranium, maybe it was around August. I was talking about… The point I was making there was uranium had a big run over… It was about a two-year period. Put on a lot of upside. And big upside often takes a lengthy consolidation. And my thinking at the time was, was this enough consolidation? Was that enough consolidation really just during June, July to correct a move that had lasted for a couple of years? And I thought, “Probably needs to do more work.” I’ve been watching how uranium has been trading over the last few weeks. It’s below the moving averages. The moving averages have crossed to the downside. I’m not getting bearish on uranium but it just makes me wonder maybe the time is not right, maybe it’s not ready to run yet. Maybe it’s going to take more time. I know a lot of people talk about uranium like it could be the new lithium. Maybe it will be, but it could take time and, of course, it may not even happen.

Just interesting to have a quick look at it on a weekly chart, and you can see. So, we’ve had the big decline, big period of sideways doing nothing, and then we’ve had this sharp rally up over a two-year period. Now, what could happen? One possibility is…and this isn’t a prediction, this is just a possibility of how these things can play out is that this consolidation takes longer to work through and that it does work through, and that we do get these big breakouts which a lot of people are saying would happen and a lot of people say will happen because of all these supply and demand dynamics of the uranium market. But saying that were to happen on that scale, this is out in 2024, potentially, now the 12 months of consolidation to work off this big rise. Maybe not. Maybe that doesn’t happen. Maybe it’s closer than I think it could be, but I am prepared that big moves take time. They take time to initially run, they take time to consolidate, they take time to run again. Just look at what copper has done over the last 18 months or so after big moves. They take time. So, if you’re in uranium, you like uranium, I think just be prepared for patience because this price action doesn’t look like it’s ready to run. May take a little bit more work, a little bit more time.

Please see video for more details analysis and charts

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