Momentum Monitor - 3 September 2019
Momentum Monitor - 3 September 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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Markets Pin Hopes on a Trade War Resolution; Or At Least a Lack of Escalating Tariff Tension

Key Ideas:

US Market – SP500 (2926)
  • In what is sounding like a broken record, the S&P 500 once again failed to hold primary resistance of 2895 last week, breaking below quarterly equilibrium of 2878. However, as it has done in the previous three weeks, the index found support around the 2825 level and recovered primary resistance by the end of the week. The index is trading in an ever tightening consolidation phase, with its 50DMA proving to be key resistance, positioning for a breakout either way.
  • The index remains in a short term downtrend, with a new quarterly equilibrium, a short term inflection point, emerging around the 2925 level. A failure to hold above this level would suggest further short term market weakness, with a likely test of its 200DMA just above 2800, while quarterly support is emerging at the previous index low around 2825. However, any breakout could result in a test of primary equilibrium at 2598.
  • Even if the US and China fail to strike a trade deal (and there are reports China has given up doing a deal until after the next Presidential election), markets will continue to cling to the signs of hope that a deal could eventually be reached – or at least the “can will be kicked down the road” – provided US economic data continues to hold up. So far, apart from the dubious signal from the inverted yield curve, signs that the trade tussle is inflicting a more serious slowdown in the US economy still remain scant.
Australian Market – ASX200 (6579)
  • The ASX200 has once again found support at first extended resistance of 6405, bouncing off this level and recovering quarterly equilibrium of 6493 in the process. However, the 50DMA appears to have acted as resistance, indicating the index remains in a possible short term down trend, although this will not be confirmed until it fails to hold quarterly equilibrium. A new quarterly equilibrium is emerging around 6620, which will become a key inflection point over the coming three months.
  • If the index is unable to successfully hold above this level then it would appear vulnerable to downside risk, with key support at first extended resistance of 6405 (which closely coincides with the new quarterly support), primary resistance at 6292 and the 200DMA around 6230. If the index is able to successfully test quarterly equilibrium, then it would be well positioned to re-test extended resistance at 6773.
  • Financials have successfully recovered quarterly equilibrium but remain below the 50DMA. A break above the 50DMA would indicate the start of a new short term uptrend. Materials found support at primary resistance and have bounced off this level, retaking primary support in the process. However, they remain in a short term downtrend.
 


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