Be Ready To Buy ASX Shares If THIS happens | Episode 105

By Jason McIntosh | Published 3 February 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 ASX 200’s relentless rise continues (but can it last)

03:48 This is the type of price action I want in ASX shares

05:16 I’ve been doing THIS in my portfolio

06:36 This is where I’ve been wrong in gold

08:15 Copper could be setting-up an opportunity

09:10 Uranium’s launching pad and a stock to play it

Transcript

Please note: Charts available from video

This video is going to focus on the ASX 200. I’m also going to cover gold, copper, and uranium, so make sure you stick around for that. I’m going to leave a link to the S&P 500 video in the description section below. 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.

So, here we have the ASX 200. And it’s been another positive week. The ASX 200 has continued its relentless upward rise that it’s had since the January low. It’s been pretty much one-way traffic for around five weeks now. And the overall structure when I look at this, when I compress this data a bit and I look at this overall structure, it looks constructive. I think it’s a positive overall-looking market. And one thing I do see at the moment just in the near term is that can’t ignore that the ASX 200 does seem to be getting stretched above these moving averages. It’s been a 9% run off that January low. So, it’s been a very strong rally. And I think at some point, the market needs to pause and consolidate those gains.

And I’m also looking at this and going, “Well, we’re only about 2% below a significant resistance area.” So, this is a triple top resistance from the all-time highs. That currently comes in at around 7600. So, from that perspective, I don’t see this as an asymmetric entry point to establish an ASX 200 position. I think that the potential for a pullback is increasing and the price action over the last couple of weeks, it does seem to be losing some of its momentum.

So, you may remember last week I showed you a rate of change indicator for the ASX 200. So, just recapping on what’s happened with that. So, you can see the price of the index has been going up, but when you look at the rate of change, it’s actually been declining. There’s been what we call divergence. So, that’s a sign that a market could be running out of steam and it does start to set the stage for some consolidation or some pullback. So, when I say pullback, I’m not talking about anything significant. I’m looking for potential for a modest pullback.

And pullbacks aren’t a bad thing either. Pullbacks are actually quite important in a healthy market because what a pullback does, it keeps the market in balance and it stops it from getting overheating. A market just continues rocking straight up often will then burn itself out and will come down very quickly as well. So, a healthy market will have these stages where it will rally, pause, and then rally. It’s a bit like breathing. You got to be able to exhale because we can’t just keep inhaling. You got to exhale as well. The market works in a similar manner.

And for me, what’ll be important, if we do see some consolidation develop over maybe the next couple of weeks, what does it look like? Is it like a bit of a sideways move which gives the moving averages time to catch up? That’s the price action I’d want to see. So, that’s where buy the dip comes in. We want to see any dips in the index being supported. And that’s the underpinnings of a healthy market. You want to see the accumulation on pullbacks, and should that happen, then that potentially creates a launching pad for another run higher and possibly break above this overhead resistance at around 7600. I don’t think there’s a need to be chasing stocks higher at the moment. If we do get this general pullback, it would give the opportunity to establish positions in companies that maybe have run over the last four or five weeks.

And also just having a quick look at the small ordinaries. And it’s a similar story. Had this strong rally off support over the last few weeks. And it has been pausing during this week. We have had a pause already develop, had a bit of a pullback. It’s been supported so far. So, I think the overall structure remains positive. And I’m long the market. I’ve got a position in a small-cap ETF. I’m long a whole lot of individual small to mid-cap stocks, and I continue to trade the market from the long side.

And I’ve been getting good gains across my portfolio letting profits run, letting stocks which I’ve been getting into as the markets turned up, letting them run, not being quick to take profits. I think that’s the most effective way to get an outperforming portfolio is that you let your profits run and you use risk management to keep your losses relatively small and do that using trailing stops and spreading risks. They’re all risk minimization strategies.

Now, if you’re getting some value from this, please hit that like button. Please leave a short comment. Really important thing because it tells YouTube that people are watching and engaging with the videos. If you do that, YouTube shows more people, and that’s a big deal for me. So, please do that. Also, maybe hit that subscribe button if you haven’t already, and better still, come visit me over at Motion Trader. If you haven’t been there, come over and see the work I’m doing with trend analysis and identifying stocks, identifying high-risk-reward opportunities, and see whether that work would fit in with what you are doing with your portfolio.

Now, let’s go over and have a look at gold. Interesting week in gold now. So, my radar has been a little bit off on this. I’ve been looking for this to pause for a couple of weeks now but it just keeps marching higher. Like the ASX 200, has been a relentless rise. I still think a pullback’s coming. It still looks to me to be losing momentum. It did pop higher during the week, but then it came quickly back down on Thursday. As I said last week, I’m not trying to be too clever with the way I trade my gold positions. I’m not getting in and out. I’m not looking at this saying, “Oh, I’m going to take some profit. I’m going to buy back when it pulls back,” because as we can see by the way I’ve been speaking over the last couple of weeks, the market won’t do what you think it’s going to do a lot of the time.

So, it’s not about trying to get in and out, it’s trying to get in when you’re getting breakouts. We spoke about this breakout back in November. It’s getting in, getting into breakouts, getting in when you start to get momentum, and then let those profits run. Don’t try and be too clever by trying to take your profits and buy them back because it’s very hard to consistently get that right. And so my preference is let my profits run, but if we do get pullbacks they provide opportunities to accumulate more positions. And also, I resist the urge to chase gold stocks after their big runs because I know they can have pullbacks as well. But overall, the structure in gold I think is looking really good.

Having a look at copper, it’s been doing more along the lines of what I was saying last week. It is pulling back, unlike gold which is holding up. Copper has been pulling back. Interesting if we put some Fibonacci retracements on just for this last leg upwards, you can see it’s coming back into the Fibonacci retracement zone now. Also got this support level coming in at around 4. So, in terms of positioning into copper and copper stocks, this is getting towards that buy-the-dip opportunity. We have the moving averages catching up. So, the reaction is going to be a few cross currents of support just coming in not too far beneath where the market currently is. Actually, there’s three points. We’ve got Fibonaccis, we’ve got the support band, and we’ve got the moving averages. So, it’d be interesting to see how copper behaves as it comes into this region.

Lastly, I want to have a look at uranium because what I’m going to do here with uranium, I’m starting with a weekly chart just to get a bigger picture view of what’s been going on because it’s been such a boom-bust in uranium over the last couple of decades now. So, we had that big boom during the 2000s, we had the bust, we had the long periods of just grinding on the bottom. And we’ve got the big rounding basing formation took place over a few years.

And it brings us to where we are now. We’ve had the big acceleration upwards during 2001, and for about 16 months now, we’ve had the market moving sideways in this big consolidation. Now that’s quite a normal price action that you get. After you get a market that has a big run, you get the big consolidation. This is all textbook stuff. And you can see the price has pulled back towards the 50 and 100-week, looking at a weekly chart. These moving averages are weekly not daily, the 50 and 100-week will pull back to those.

So, this is one of those points where we could see the uranium trend re-engaged to the upside. So, this is the way I want to be playing uranium. I want to be playing it from the upside. I think the asymmetry in this chart is very much to the upside, so I think the downside risk, relatively low compared to the upside risk, upside potential being relatively high. So, that’s why I want to be playing it from the upside. So, I’ve got a longer-term position in a uranium ETF. I’m also looking at tactical opportunities where to potentially get more.

So, just coming across looking at the daily chart. We spoke about this two, three weeks ago, this pullback to the moving averages. I was talking about this maybe being a point where would potentially establish positions with relatively low risk. So far, that’s been playing out. We’re getting some movement to the upside. I don’t know whether this is going to lead to a big move higher or this is just like another point in an ongoing meandering consolidation which may still have many more months to play out, then maybe we get a big move to the upside, or maybe we don’t get a move to the upside at all. We don’t know, but that’s the way I want to play it. I want to play it from the upside.

And at the moment, the moving averages have turned upwards. The 50-day moving average is above the 100-day moving average. Price is above the moving averages. We have upside momentum. So, these are all positive things to take on board when considering when should I take a position in uranium. We get some consolidation over maybe the next week or two. Maybe that provides like this, this period during mid-January, maybe provides another stepping stone, another leg higher. It’ll be interesting to watch how it plays out.

One of the stocks which I’m looking at, one of the local stocks which is interesting local stocks, Boss Energy. It’s been bounded by support at around $1.70 and resistance at around $3.10 in the upper middle part of the range at the moment. Moving averages are now starting to cross. So, it’s starting to shape up as something which becomes…is getting interesting, which is worth keeping a close eye on above those moving averages.

So, I’d like to see what would be interesting if the price were to pause here over a week or two, get a bit of a platform, then start to push upwards. And that could be a point where the moving averages have crossed, it’s broken to a new high. Maybe that sets up a run at resistance at around $1.10. So, I think that’s one of those uranium stocks, a local uranium stock which I’m interested in, which I’d like to keep a close eye on, and which I do through my Motion Trader service as one of the stocks which will turn up in the scans when the conditions are right.

So, let’s leave that there for this week. It’s been another interesting week of price action. Hopefully, that’s been interesting. Hopefully, you’ve got some good info from the video. Please give me that like. I look forward to coming back and talking to you next week. Till then, bye for now.

Please see video for more details analysis and charts

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