Momentum Monitor - 14 May 2019
Momentum Monitor - 14 May 2019

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.


BREAKING NEWS: China has announced that it will raise tariffs to 25% on part of US$60bn worth of US goods from 1 June

Trade Spat Might Get Worse Before it Gets Better

Key Ideas:

US Market – SP500 (2881)
  • The S&P500 failed to hold the primary resistance level of 2895, briefly trading below its 50DMA, highlighting the risk of a potential short term downtrend. However, the index was able to recover its short term uptrend on Friday although failed to successfully retake primary resistance, with an intraday high of 2891. The index remains in a longer term uptrend but is currently under pressure, needing to successfully re-test and hold primary resistance. A move above primary resistance would see first extended resistance at 2965 coming back into play.
  • However, a failure to successfully re-test primary resistance could see the index enter a short term downtrend, with key support around the 2760 level, being its 200DMA. A failure to hold the 200DMA would put all of the trends at risk, which would be confirmed by a break of primary equilibrium at 2598.
  • Last week’s round of trade talks in Washington failed to reach a breakthrough while ongoing investor optimism of a deal to resolve the issue probably explains the relatively mild share market reaction so far to the resumption of the trade war. While a deal will likely be reached, the risks have now ramped up again after the setback in the talks so investors need to allow that the trade war could again get worse before it gets better, risking further short-term weakness in share markets at a time when they were already vulnerable after strong gains this year.
Australian Market – ASX200 (6298)
  • The ASX200 bounced off its 50DMA last week and went on to successfully re-test and hold primary resistance at 6292. With the index in a long term uptrend we would expect it to continue
    to extend higher with the next risk target being first extended resistance at 6405.
  • However, an escalation in trade tensions could lead to further short term weakness in the index, with a failure to hold primary resistance likely resulting in the index coming back to key support at its 200DMA, just above its 6000. A break of this level would put the long term uptrend at risk, with a break of primary equilibrium at 5810 confirming a new long term downtrend.
  • Financials need to hold their 200DMA once NAB and WBC go ex div this week, or risk reversing the long term uptrend, especially if they fail to hold primary equilibrium. Materials have successfully re-tested and held first extended resistance and may trend higher from here, with the 50DMA the next target.

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.