Momentum Monitor - 21 May 2019
Momentum Monitor - 21 May 2019

Topic

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.

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News Driven US Markets Offer Little Direction for Bulls

Key Ideas:

US Market – SP500 (2860)
  • The S&P 500 closed below its 50DMA last week, just one day after it had climbed back above that key level. While it wasn't a sharp fall below that line, it did provide a setback for the market's rebound. With the index now in a short term downtrend, the S&P500 has gone from an uptrend under pressure, to a possible corrective phase.
  • If the index is not able to successfully re-test and hold its 50DMA, then there is a high probability of it coming back to test its next key support level, the confluence of its 200 and 100 DMAs, at the 2770 level, representing a downside of just over 3% from current levels or 6% from the market peak. A failure to hold 2770 would likely see the index come back to quarterly equilibrium at 2713, or, most likely, primary equilibrium at 2598. This would satisfy the requirement of a correction, down 12% from recent highs.
  • From an investor's viewpoint, the worst part of current stock market conditions is that this is a news-driven market. Constant, news-driven uncertainty is never good for the stock market, it is a creature that can change from day to day, with markets whipsawing around. News driven events such as geopolitical issues, uncertainty around trade, North Korea, Iran and still mixed global economic data could be the catalysts for a market pullback.
Australian Market – ASX200 (6476)
  • The ASX200 ended last week just above quarterly resistance of 6361 after consolidating its position around primary resistance at 6292, ahead of the weekend’s Federal election. The index shot up 1.74% on Monday after the shock Coalition victory, breaking through our long term risk target of 6405, being first extended resistance.
  • The index has now entered its heavy resistance zone and could be vulnerable to any short term profit taking. In such an event, we would expect 6405 to represent the first level of support for the ASX200, with primary resistance at 6292 a key support level. A break of primary resistance would likely see a short term downtrend emerge, with the 50DMA at 6250.
  • Financials successfully held primary equilibrium last week after ANZ, NAB and WBC went ex div. The sector has been one of the key beneficiaries of the Coalition victory, successfully testing and holding quarterly resistance. Materials have successfully re-tested and held first their 50DMA and are now back into a short term uptrend, with extended resistance 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.