ASX 200 Hits Record High: Technical Analysis Insights for Investors | Episode 270

By Jason McIntosh | 6 December 2024

ASX 200: Record Highs and Technical Analysis Explained

The ASX 200 has reached another record high this week, showcasing strong momentum across Australian indices, including the Small Ordinaries and Emerging Companies. This bullish trend offers opportunities for savvy investors who understand how to interpret market data through technical analysis. Let’s dive into the key insights from recent market activity and explore tools like the Relative Strength Index (RSI) to help you make informed decisions.

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Understanding the RSI (Relative Strength Index)

The RSI is a popular momentum indicator that measures the speed and change of price movements. It helps identify whether a market is overbought (above 70) or oversold (below 30). While these thresholds can provide valuable signals, it’s crucial to understand their limitations.

• Overbought: A market that may be due for a pullback.
• Oversold: A market that might be ready for a rebound.

However, markets can remain in overbought or oversold conditions for extended periods, especially during strong trends. For example, during 2020 and 2021, overbought RSI readings did not lead to significant corrections, as the market continued its upward trajectory.

👉 Learn more: What is RSI?

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Spotting Divergence for Potential Turning Points

One of the most valuable applications of the RSI is identifying divergence, where the market moves in one direction, but the RSI moves in another. This can signal a potential trend reversal:

• Negative Divergence: Prices hit new highs, but the RSI fails to reach a new peak, suggesting weakening momentum.
• Positive Divergence: Prices hit new lows, but the RSI doesn’t confirm, indicating potential upward momentum.

Key Tip: Look for divergence when the market is stretched above or below its moving averages. For example, earlier this year, the ASX 200 showed divergence while being significantly above its 50-day moving average. This alignment added weight to the RSI signal, suggesting a pullback might occur.

👉 Learn more: Divergence in Technical Analysis

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Keep It Simple: The Power of Trend-Following

While indicators like the RSI can provide valuable insights, simplicity often leads to better results. Overloading charts with too many indicators can create conflicting signals and complicate decision-making.

Here’s how to streamline your technical analysis:

• Use a 50-day and 100-day moving average to assess the market’s structure.
• Focus on price trends rather than relying solely on reversal indicators.
• Maintain a wide trailing stop to manage pullbacks without exiting strong trends prematurely.

Currently, the ASX 200 remains in a structurally bullish trend, with rising moving averages and price action favoring upside momentum. Staying invested in a bullish market while using trailing stops can help manage risk and maximize gains.

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Key Takeaways

• The ASX 200 continues to show strong upward momentum, supported by bullish technical indicators.
• The RSI is a useful tool but should be applied cautiously, especially during strong trends.
• Simplicity in technical analysis—focusing on trends and moving averages—can lead to better decision-making.
• Wide trailing stops help navigate market pullbacks while staying aligned with the broader trend.

As markets evolve, remember that technical analysis is about probabilities, not certainties. The key is to stay flexible, informed, and aligned with the dominant trend.

👉 For a deeper dive into technical analysis, check out our Weekly Strategy Sessions.

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Motion Trader‘s algorithms scan more than 2,000 ASX stocks daily in search of medium term investment trends. We then tell our members precisely when to buy shares. And most importantly, we tell them when to sell.

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Video Timestamps

00:00 Intro

00:40 ASX 200 indicator causes concern (is it justified?)

02:30 Don’t use this indicator the traditional way

07:25 Are you overcomplicate it? Focus on THIS

Jason McIntosh | Founder, Motion Trader

Jason’s professional trading career began over 3 decades ago. He’s a founder of two stock advisory firms, a listed funds management business, and has helped thousands of investors navigate the stock market. Click here to read Jason’s incredible story of, at age 20, sitting alongside some of the world’s greatest traders (and the life changing experience that came with that).