Don’t Buy The Dip In ASX | Episode 118

By Jason McIntosh | Published 24 March 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 ASX 200 rebounds from key region (look for this next)

02:40 Small caps make new low. This is what I’m doing.

04:24 Why this type of situation is so difficult

06:48 Should you buy this surge in gold?

10:50 Uranium pullback (is it time to buy the dip?)

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 and uranium, so make sure you stick around for that. I’ll cover the SP500 separately. You the can watch the SP500 analysis 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.

Let’s begin with the ASX 200. And it very much does remain in corrective mode. Nothing has really changed from last week in that respect. We have seen the market attempt to bounce off this Fibonacci region. So, the Fibonacci region, I’m using the September low and the February high. And when we do that, this is the Fibonacci retracement region. And at the moment, we’re right in the middle, right at that 50% retracement. I think there’s a good possibility we see the market continue to try to rebound up towards, maybe around this 7,100 sort of mark.

We are quite stretched below the moving averages. So, as always, I’m using the 50 and the 100-day moving averages. And as you’ll know, I often say when a market gets stretched below those averages, a bit like a rubber band, it tends to then rebound back up towards them. And that’ll give us some clues as to what happens next. So, if we get a market that starts to just slowly move sideways, beneath the moving averages, as the moving averages come lower, then that opens up the possibility that we then get another leg lower. But we’re not at that point yet.

We want to just see what happens here, do we get a rebound? What does it look like? And I think that as I’ve been saying for a while, I’m just not in a hurry to do a great deal at this moment. This isn’t a dip that I want to buy. I want to buy when the market is above the moving averages. I don’t want to be buying below the moving averages. I think that’s the most vulnerable and the riskiest time to be buying. Sometimes it works, and it can work really well, but a lot of the time, buying below these averages often leads to trouble.

And as I’m saying, these moving averages continue to roll over. So, there really has been quite a bit of technical damage done over the last couple of weeks, and I think it’s going to take time for that to sort of stabilize and to work through before we can start looking at the possibility of more positive and more bullish scenarios. Just having a look at the small ordinaries, and this has been a focus point over the last couple of weeks. We started to get this breakdown, which we were talking about a couple of weeks back. And as we know, that’s continued to follow through, and broken below support at around 2,780, and has just made a new low on Friday. The situation here now is, again, it is becoming stretched below those moving averages. So, it does open up the possibility of some sort of a rebound, but for me, again, it’s not a rebound I want to buy.

The market is below the moving averages, and the moving averages, small ordinaries, they’ve crossed, and they’re actually trending lower. So, for me, this is a bit of a vulnerable point if we get a bounce. What I might do on the bounce, well, I’ve already got some sell orders for some small-cap stocks, which I’m looking to exit. The thing with the small-cap stocks is that you can’t always choose your exit time because the bids aren’t always at a reasonable price. So, sometimes it’s a case that you’ve got to wait for some sort of a rebound.

So, if you get a rebound in the small odds, there’s a few stocks I’m looking to exit, I’ve got small odds ETF as well, I may lighten that, or I may exit that. I’ll just see what happens. I’ll still be along the market, but if we get a bounce, I’d use that as opportunity to just clean a few things up whilst we work through this period, which, at the moment, it really is an incredibly difficult period. Like the S&P 500, this has really now become a big trading range. And just to draw something in, you could say something around these sort of parameters since June last year. So, this is really becoming quite a large range now. Of course, got a little bit of an overshoot in September, and in August last year. But overall, you can see the market really has been stuck within this range.

And the thing with trading ranges is people start to get positive as we get to the top of the range, and I was positive on the market in June, we’re above the moving averages. Moving average [inaudible 00:05:02] trending higher. So, gave cause for optimism. But then once the range starts to become evident, you can see we’re getting optimistic at the top, and then when we’re down at the lower end of the range, it was a point of pessimism. And then you end up with this whipsaw type of action where people get their positions cleaned out near the lows, and they start getting low again near the highs. And that cycle continues.

Ranges are notoriously difficult, and psychologically they’re unpleasant as well because of that whipsaw. But I think we just need to wait this out. Ranges like this, they always break, and trends always return. It’s just a matter of being patient, and letting the market do what it’s going to do, and then getting the signals when the time’s right. No one knows when that’s going to be. Lots of discussion about bearish scenarios. But at this point, the market is holding within this range. It’s a case we need to wait and see where it plays out, but below the bottom of the range, we start to look at those more bearish scenarios. But there’s no guarantee the bearish scenarios play out. We could get a base here. We could ultimately get a break to the upside. It’s a case of we just need to wait, let the market play itself out, and be conservative whilst we’re within this range.

Now, if you’re getting some value from this, please hit that like button. Please leave a short comment. Just, hey, thanks to the video. It just tells YouTube people are engaging. YouTube shows more people, which helps me a lot. And now before I wrap up, I just want to have a quick look at some commodities. Let’s jump over and have a look at gold. Really interesting week in gold. Gold put on more of a rally, and has pulled away further from the moving averages. I think gold overall is looking good. Ever since we got this breakout back in November, it’s been a case of getting set in gold stocks early on, and then holding gold stocks as we’ve continued to rally.

The question is now, would I want to add to gold positions at this current time? Now, things I’m looking at here, I’m looking at the extent the prices rallied above the moving averages, is looking a little bit on the stretch side, little bit on the stretch side to the upside in terms of I don’t know that I want to be adding up here, but also more importantly, when I compress this a bit and look at some of these, look at this resistance points, overhead resistance.

So, joining those two high points, a high point from August 2020, and then again in March 2022, we’ve got a double top. Double top resistance. And this is similar to what we had in the ASX 200 a few weeks ago where the market was approaching… And the ASX 200 is triple top resistance. Just quickly showing you what I mean. Yeah, the triple-top resistance. Market was approaching it, and I was saying, it’s not an asymmetric entry point when we’re so close to a big overhead resistance. And that’s the situation we have in gold at the moment. We have big overhead resistance, and we’re closing in on it.

So, for me, it’s not an asymmetric entry point. It’s certainly a case of holding stocks, which I have because this is a nicely developing trend. But I don’t want to be adding close to overhead resistance. Just to give you an idea from a previous period, I showed you this a while ago. Double top resistance in gold. And it’s interesting. Let me just compress that, and you can compare the two periods. So, we had this zigzag correction in gold at that point in time, just like now we have a zigzag correction in gold, gold then started to rally towards the resistance.

And then we had this, this is a six-month consolidation. Now this is highly unlikely to play out exactly the same way as previously, but it just does show the potential that a market has a strong rise, may at some point have a prolonged consolidation, gather up energy for then potentially punching through the resistance. So, that’s why I’m just cautious on buying gold at this current point in time. I like it, I want to hold stocks, but I’ll pass personally on buying gold itself, but look at the gold stocks individually. But that’s a point to be aware of with gold itself. Now, I want to have a… Whilst we’re on the top of gold, quick look, Aussie gold, gold in Aussie dollars, talked about this…

I think the last time I spoke about this was in January. I know that we had a breakout. We had a breakout above a consolidation, above a resistance point. And you can see that’s continued to unfold nicely over the last couple of months. We’ve now got this breakout for an all-time high in Aussie gold. Well, at least I think it’s an all-time high. Let’s just go to the weekly chart. It’s the highest level in a couple of decades at the very least. This chart only goes back to 2006 in ETF. But we are at the highest level we’ve seen Aussie gold in many, many years. So, I think this all bodes well for the Aussie gold outlook overall. We have a defined uptrend. Had a breakout.

Again, expect some consolidation. It’s a big break stretched above averages. But I think in terms of Aussie gold, I think the overall outlook continues to look good. Now, I’ll finish with a quick look at copper. Copper’s been pulling back. Continues to pull back below those averages. Averages turning lower. This is another story of a trading range. This big range has been in place in uranium going back to September 2021. As I was saying, people start to get optimistic near the top of the range, but then the risk with the top of the range is that you don’t know that’s going to break. That’s why I don’t like preempting breakouts from ranges.

Now, back into the middle of the range, maybe this continues to drift towards the bottom of the range. We don’t know, but I want to play uranium from the upside, but I want to play it on breakouts. I don’t want to buy pullbacks because you never know how deep a pullback can be. And looking at Cameco, the big producer, big Canadian producer, very much in a range itself. We talked about this again, top of the trading range. It was like, let’s wait and see whether it breaks. It hasn’t, it’s come back into the range, and just a quick example on why you want to respect the overall trend.

You might like uranium from a medium to longer-term perspective, but you’ve got to wait for the price action to support the opinion, and not try and force your opinion on the price action. So, DPLO, DYL ASX listed stock, it was one of the boom stocks during 2020, 2021. But in the last probably five months, it’s been one to just… The timing hasn’t been right. The last time to attempt to buy this was when we had this break higher around August last year. That breakout didn’t succeed. It failed and it’s been a case of sit on the sideline and wait for the opportunity to see whether an opportunity represents. It’s been below the moving averages. Moving averages have been lower. And just look at this, this decline over the last couple of weeks, it’s more pronounced in the uranium itself. So, it’s a case of not forcing your opinion on the market, waiting for the market to confirm your opinion with the correct type of price action. And we don’t have this in a lot of these uranium plays at the moment.

So, let’s leave that there for this week. Hopefully, that’s been interesting. Hopefully, it’s been helpful. I know it’s a testing time, but we will come through this. So, look forward to coming back and talk to you next week, until then, bye for now.

Please see video for more detailed analysis and charts

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