Momentum Monitor - 27 August 2019
Momentum Monitor - 27 August 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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China Retaliates with its Own Tariffs, Causing a Trump Twitter Tirade

Key Ideas:

US Market – SP500 (2847)
  • Once again, the S&P 500 failed to hold primary resistance of 2895 last week, breaking below quarterly equilibrium of 2878 in the process. However, as it has done in the previous two weeks, the index found support around the 2825 level and recovered.
  • The index needs to successfully re-test and hold quarterly equilibrium this week, with any failure to do so confirming the short term downtrend. If it fails to retake quarterly equilibrium, the next key level of support for the index sits at the 200DMA, around 2800, with a failure here indicating a potential long term downtrend emerging, with a possible test of primary equilibrium at 2598 over the short to medium term. If the index does recover quarterly equilibrium in the short term, then primary resistance at 2895 will likely remain a key resistance level.
  • China’s long threatened retaliatory move came on Friday, with a 5-10% tariff on $US75b of US imports. This was met with a twitter tirade by US President Trump, who threatened further moves and ordered US companies to stop doing business with China. Trump then announced, after Wall Street’s market close, that he would add a further 5% to all actual and planned tariffs this year. The question for investors now is – how will market’s react to Trump’s new tariffs? Will China retaliate further and when? And how would Trump then react?
Australian Market – ASX200 (6440)
  • The ASX200 has failed to hold quarterly equilibrium of 6493, as well as its 100DMA, in Monday trade. However, the index did find support intraday at first extended resistance of 6405, a level which it found support at in the prior week. The index needs to continue to hold 6405 or risk moving lower, with the next level of support being primary resistance at 6292.
  • If the index is able to successfully hold 6405, then it should be well positioned to re-test its extended risk target of 6773. However, if 6405 proves to be a point of key resistance then it would indicate further downside weakness. In such circumstance, the index would still be in a long term uptrend, trading above its 200DMA, and would have corrected approximately 8.5% from its 6876 intraday high in late July.
  • Financials failed in their re-test of quarterly equilibrium are into a confirmed short term downtrend. Downside risk is to the 200DMA or primary equilibrium, a key inflection point. Materials failed in their test of first extended resistance, as well as the 200DMA, finding support at primary resistance. Need to hold this level or risk further downside.
 


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.