The Momentum Monitor - 4 February 2020
The Momentum Monitor - 4 February 2020

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 Client Portal.
 

Coronavirus Contagion Concerns Impact Markets

Key Ideas:

US Market – SP500 (3226)
  • The S&P500 failed to hold quarterly resistance of 3308 last week and has retraced some of its recent gains, coming back to test short term support at its 50DMA. If the index fails to hold above its
    50DMA, currently 3221, then it is at risk of testing quarterly equilibrium at 3112. A failure here would see the index likely to test primary equilibrium and its 200DMA at 2974. This would constitute a ~10% correction, which would represent a healthy pullback in recalibrating equity valuations that have become unsustainably high, before moving higher. Our risk target for the S&P500 in 2020 is 3471, represented by first extended resistance.
  • As it currently stands, the coronavirus appears more easily spread, though less lethal than SARS (2% vs 10%). There are already more cases of infection (17k) than there were with the whole SARS outbreak (8k), and we’re still likely early doors, with the World Health Organisation only last week declaring a global health emergency. Once it becomes clearer that the number of coronavirus cases has peaked, risk sentiment should improve, and equity markets will be supported by signs that the global growth outlook remains positive. But we are not there yet.
Australian Market – ASX200 (6923)
  • The ASX200 has failed to hold primary resistance at 7047, breaking below the psychologically important 7000 level in the process. The index extended lower in Monday trade, meeting quarterly resistance at 6894 and holding this level. While the index remains in a short and long term uptrend, it appears vulnerable to entering a short term downtrend, with the 50DMA sitting at 6860.
  • A failure to hold short term support could see the index go on to test the short term inflection point, quarterly equilibrium, at 6684, which also represents long support in the form of the 200DMA. A failure here could see a more intense pullback emerge, which could see the market test primary equilibrium at 6377. If this level is reached it would correspond with a ~10% correction.
  • Financials have failed to successfully hold above the 200DMA and appear at risk of coming back to test quarterly equilibrium, with the risk of a possible short term downtrend emerging. Materials have failed in their test of primary resistance, retracing some of their recent gains and failing to hold quarterly resistance. They appear likely to test quarterly equilibrium, which would put the short term uptrend 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.