More Buy Signals in ASX Stocks | Episode 101

By Jason McIntosh | Published 20 January 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

00:32 My #1 takeaway from ASX200’s latest price action

02:06 This is the new primary focus for the ASX200

03:55 I’m interested in buying stocks like this

04:29 What the moving averages tell us about the Small Ordinaries

07:20 Don’t miss the latest update on gold (this is my concern)

09:45 This gold stock is breaking out (why I like it)

11:22 Aussie gold (and the strategy I’m using)

13:24 An opportunity in uranium (let’s get tactical)

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 those. I’m going to leave a link to the S&P 500 in the description section low. 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 it’s been another good week, another constructive week for the local market. The big thing for me about this is that the market is now comfortably trading above these moving averages. So, we’ve got the 50-day and the 100-day moving average. Those moving averages crossed back in November, and the market has consistently been able to stay above those moving averages. And what we’ve also seen just in the last couple of weeks is when we had the retest. We retested the moving averages in late December, early January. The market held pretty much around those moving averages, and has rebounded upwards.

So, that’s a sign of buying the dip coming in and a sign of accumulation on pullbacks, which is quite different to a lot of the price action we saw last year where it was a case of sell the rally. Every time the market came up to the moving averages, it was sell. Market got up, got a bit above the moving averages, and then it was sell again. We’re seeing a different type of price structure now. We’re seeing interest in buying dips. So, that’s a positive for the market.

Now we’ve been watching this resistance band in here around 7200 for quite a while now. It’s been a significant area of activity for a number of months, really probably about an 18-month period now. We’re now getting above that resistance area. So, I’m going to take that off as being the primary focus.

What I want to look at now and keep watching for, I want to watch these highs. These are the all-time highs that the market got to in ’21 and then also retested last year. And we can really call this a triple top. There are three tests of it, so that’s a triple top resistance area. That now becomes the focus for the ASX 200. Not a level I expect to see the market break in the near term, and I don’t really even expect it to be tested at least over the next month. I think where the market is positioned at the moment, it’s actually now getting quite stretched above these moving averages. And that suggests to me that we should be ready for some pause, some consolidation before potentially then continuing higher and testing this resistance band up at around 7600.

But at the moment, I think my hesitation with buying the ASX 200 index at this level is the fact that, as I was saying, it does look to be stretched off the moving averages. And when that happens, you often do get the pullback.

What we can do, which is interesting to do, is put some Fibonacci retracements in. We don’t have a top at the moment. This market could continue rising. But just, for instance, if it were to pause around current levels, it does open the possibility of a pullback back towards 7200, which would coincide roughly with around where the moving averages may be. That’s the consolidation potential which I do think the market has. And as I’ve been saying over the last few weeks, I’m more interested at this point in buying the individual setups which I’m seeing in stocks. I gave you an example of one of those last week. So, back back to last week’s video if you missed it. And I’m looking for stocks which are trading above their moving averages which had positive momentum, and also stocks which are breaking out from basing formations. We’re seeing quite a few signals for stocks which are coming out of basing formations, which I just mentioned, the example from last week.

Now let’s go over and have a look at the small ordinaries, which is also showing some good positive price action. So, what’s happened over the last week, this market has started to consolidate. We’re seeing the small ords start to trade sideways in a narrow range. And that has occurred after this bounce-off support which is around 2800. We had quite a good rally off there over the last few weeks. What’s positive on this chart is these moving averages, the 50 and the 100-day moving averages. They’re now starting to cross, and the 50-day moving average moving above the 100-day. So, that’s a sign of upward momentum. A market is considered to be in a healthy position when the 50-day moving average is rising and it’s above the 100-day moving average. It’s a good strong technical backdrop for a market to have. And that’s what we’re seeing in the small ordinaries.

I also like that we’ve got a rounding…looks to me like a rounding basing formation. I just sketched in like this. You can see that the price action broadly… It falls and then starts to round upwards. So, that’s a potential bottoming formation as well which could be supportive of higher levels.

And so the next target is this resistance band which comes in at around 3100. You can see that’s been a technically active area for some time. And I think that the path of least resistance, at least for the time being, it remains upwards, and I think we do get a retest of this 3100 area maybe over the next few weeks, maybe over the next month. It’s encouraging that we’re seeing dips being bought. So, we had a dip back to this support recently, it was bought, there was accumulation. And as I’ve been saying over the last few weeks, I think the small to mid-caps are looking the most interesting. They’re looking the most interesting part of the market to me. They’re looking like the part which has the most recovery potential after this big sell-off that we did have during the last 12 to 18 months in the smaller to mid-end of the market.

Now, if you’re getting some value from this, please hit that like button, please leave a short comment just saying, “Hey, thanks for the video.” It just tells YouTube people are watching, and then YouTube people, and that really helps me. So, please do that. Hit the subscribe button if you haven’t already, and come and visit me over at Motion Trader. Take up that free trial and hear about more of these signals I’m seeing in these small to mid-cap stocks with the rounding bottoms and above the moving averages, all of that. You can check it out for a couple of weeks for free. So, do that if you haven’t already done so.

Now, let’s move on to gold and see what’s been happening there. And gold has been… Again, just as I was saying last week, it looks good and it continues to look good. It continues to trend higher. As I’ve been saying for a couple of weeks now, the concern here now is the timing of the pullback. A pullback is inevitable. It will occur at some point. When is it going to come, and from what level will it come from? Will it come from higher up or are we getting close now? We just don’t know. There’s no way to know this. We can see that the market is stretched above the moving averages. When a market gets stretched above the averages, it’s only a matter of time before it comes back. See back here in March, we really got stretched above those averages, and when the market did start to correct, it corrected quite quickly and it was quite deep. That’s the risk with getting too excited about loading into gold stocks at current levels.

I think the strategy here is really quite simple. I think it’s a case of holding gold stocks which are in a portfolio and doing well, and I think it’s also a case of not trying to be too clever and saying, “They’ve had a run. I might take profit now and buy them back when they pull back.” Sometimes they don’t pull back anytime soon. They go a lot higher, and then they pull back. So, it’s a case of not trying to be too smart and get in and out. Ultimately, I think gold can go a lot higher, and I don’t want to be trading in and out of my core positions.

There’s this great speculator from the early 20th century, or around the 1920, 1930s, a guy called Jesse Livermore. And I remember this quote. This really sticks in my mind. It always has. He said something along the lines of “It was never my thinking that made me the big money. It was always my sitting.” So, in other words, of course, you got to do some thinking, have the ideas, get into the positions, then don’t overthink them. Let the market do its thing. Let the market run. Sit. Don’t do anything. Resist the temptation for activity. That’s where the big money is made when a trend really kicks on and really goes a long way.

One stock which I think will be worth considering for people who like the idea of gold but don’t have any gold stocks and want to spread risk, it’s this ETF. It’s an ETF. The VanEck Gold Miners ETF. Ticker code is GDX. Trades on the U.S. market as well as on the ASX. I’m showing the U.S. version. It’s more depth to the data. It’s just more volume. Gives me a better chart to look at. But this is interesting. This is the GDX, Gold Miners ETF. It’s recently broken above this resistance band. I’ll just compress this chart a little bit. You can see this resistance goes back to 2019. It’s been an area which held the market for a while. It’s been a support region, and now it’s most recently been at [inaudible 00:10:34] area. And we’re now getting to the top side of that.

That’s really encouraging. If you buy an ETF like this, you’re getting a large exposure to stocks like Newmont and Barrick, the big market cap gold stocks, as well as stocks like Newcrest and Northern Star. They’re going to be in there, too, well, as a host of other things. So, it’s a good way to get that broad exposure to the gold sector rather than being stock-specific which can be more volatile. This can be volatile, too, of course, but less so than an individual stock. Moving averages have crossed, moving averages are trending higher, price is above the moving averages, and it’s just gotten above this resistance band. So, maybe that’s an area which could be considered for those wanting to gain some gold exposure that might not have any at the moment.

I want to have a quick look at the Aussie gold price. That’s been very interesting. It’s really accelerated over the last week. Just shows the importance of looking at these trading ranges when they have developed and looking where the price is relative to the moving average. If you like buying the dip, the time to buy dips is buying dips towards moving averages which are trending higher, and then buying breakouts. That’s my strategy. That’s how I operate. That’s how my Motion Trader strategy operates, buying these breakouts. And so far, this is proving to be quite a nice break. And we’ve been speaking about this since it was in this range in December. So, these patterns are recognizable, they’re repeatable, and they can complement a fundamental strategy, or they can be a standalone strategy to focus on things, where I think this is going now.

I’m going to jump to a weekly chart on Aussie gold. And this is really interesting because you can see this big range that Aussie gold has been in for the last two and a half years now. We could draw a bottom trend line on that as well. Perhaps we could call that a range. Now, I think at some point this is going to break to the top side, whether it’s in the near term or whether it still takes… I don’t know. And I always say I don’t know because I don’t. Many markets can take many courses. This could steam upwards over the next couple of months, or could pull back, do a little bit more work, and then punch up later in the year. Markets can go in many different pathways. So, that’s why we don’t want to be too clever getting in and out of positions. But there is momentum in Aussie gold, and I think it does have the potential to go to new highs, very much potential to go to new highs and well beyond those as does the U.S. dollar gold price as well.

Now I’m going to finish up with a quick look at uranium. Uranium, looking interesting, very interesting. We’ve got this pullback to the moving averages. The moving averages are now just starting to cross, the price has pulled back after having a rally late December, early January. So, from an asymmetric risk-reward proposition, it’s actually a point where someone could consider an entry. It could be a case of… It’s a tactical type entry where you’ve got upward momentum, you’ve got a pullback. It’s interesting. Let’s just put some Fibonaccis on. I think we’ll find this has come right back to the Fibonacci region.

So, let’s just look at an example from a trading perspective. A trader might say, “I want to buy here on the pullback. I want to buy the dip to the moving averages, into the Fibonacci zone, and I’m going to put a stop loss just beneath the Fibonacci,” say in there. So, I’m just sketching this in. I’m talking as I’m thinking it out. So, stop loss in just below maybe 15. So 15 is a round number, good place for stop losses just below a round number because round numbers tend to cluster stop losses. And then you say, “Okay, well, we’ll see what happens. If the market does happen to take off, it could be quite a good entry point. This is why I say asymmetric in that the relative risk is smaller than the potential upside. That’s the way I like to play markets. I want the reward very much tilted in my favor versus the risk. Of course, this may not happen. May come back to the exit level and be stopped out. But that’s just an example of one way a trade could be taken.

Another way would be to say, “It’s looking interesting now. I might buy uranium if it starts to break above the recent high points.” But the point is we’re looking at markets which are above moving averages and which have the potential to move upwards. It has been in this big holding pattern for a while now, and it could remain in this holding pattern. This may not be the real thing. This may just be part of an ongoing trend in sideways that goes on for many more months. But it is an interesting…

Looking at some of the gold plays. I looked at the ASX-listed plays. I don’t like them as much because looking at Boss Energy, for example, the moving averages haven’t crossed and Boss is trading below the moving averages. So, it doesn’t have that relative strength for me at the moment. It may well go up, but that’s not the way I’d like to play it. I looked at Cameco being the big Canadian-listed player. Looks more prospective to me in that we’ve had the run. It looks a bit more like the uranium price, had the run, having or had the pullback, and maybe the consolidation goes on a little bit longer. These moving averages have turned up. They’re close to crossing. Maybe this is an entry point into something like Cameco.

And as I say, it could also still be too early. We don’t have breakouts in uranium. We just have the interesting setups which are continuing to evolve. So, I’ll continue to watch the evolution, and I’ll continue to update you when I see things just so you can see how I’m thinking. You can see how the setups are coming into play. And for those wanting to be early adopters in potentially the next move higher, I say potentially because there’s no guarantee there will be another move higher, those wanting to be the early adopters, well, this is where you really start getting some plans in place and thinking about how you want to play it.

So, let’s call that a wrap for this week. Been great talking to you. Thank you for joining me. Always love talking to you about stocks. Make sure you come and join me next week. Give me that like. See you next time. Until then, bye for now.

Please see video for more details analysis and charts

Looking for the best ASX stocks to buy now?

Motion Trader‘s algorithms scan more than 2,000 ASX stocks daily in search of medium term investment trends. We then tell our members precisely when to buy shares. And most importantly, we tell them when to sell.