Momentum Monitor - 11 December 2018
Momentum Monitor - 11 December 2018

This report monitors market risks by tracking the support and resistance levels used by high frequency traders and applies the principle of trend identification and mean reversion to identify high probability risk targets.

The below is a preview from our Momentum Monitor research report. To view this report in full visit the Patersons Client Portal.

The Rollercoaster Ride for Investors Continues, as Sentiment Changes on a Daily Basis

Key Ideas: 

US Market – SP500 (2633)

  • The S&P500 once again re-tested but failed to hold primary resistance at 2765 and its 200 day moving average (200DMA) at 2762, with the index coming back to its previous lows, just above the 2600 level. The index appears range bound with increasing volatility between first extended resistance at 2819 and psychological support at 2600.
  • With the short and medium term downtrends remaining intact, and the long term uptrend at risk, it appears more likely that the risk is to the downside. With this in mind, a break of the 2600 level would most likely see the index come back to test key support at the 2018 primary equilibrium of 2534 and the 2019 primary support, around 2500 (yet to be confirmed). The key inflection point for the index into 2019 is primary equilibrium, which is emerging around the 2700 level.
  • Our assessment remains that US equity markets are unlikely to go into a recession led bear market as the conditions aren’t in place for a US/global recession: we haven’t seen the sort of excess in discretionary spending, debt and inflation that normally precede recessions; monetary policy is not tight (and the Fed is likely to pause next year); and the slowdown in growth indicators looks like the short-lived shallow slowdowns we saw in 2012 and 2016.
Australian Market – ASX200 (5553)
  • The ASX200 has failed to hold primary support at 5658 and has broken down through first extended resistance at 5598. The long term downtrend remains firmly in place, with the index hitting 2 year lows. The next key support level is extended support at 5403, with this important level becoming primary support in 2019.
  • This current market correction is looking quite similar in context to the 2015-16 global growth scare. That correction lasted just over 9 months, with a total decline of just over 20% (a technical bear market). If we see something similar this time, it would imply a market low in May 2019, at just below 5100.
  • Financials have broken extended support levels and likely to head lower form here, with 2019 primary support some 3.5% below the current level. Resources have failed to hold primary equilibrium and may continue to move lower from here. Primary support in 2019 is emerging 3% below the current level, with the long term uptrend remaining at risk.

Warning: This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate to your particular investment objectives, financial situation or particular needs. Prior to making any investment decision, you should assess, or seek advice from your Adviser, on whether any relevant part of this report is appropriate to your financial circumstances and investment objectives.