ASX 200: Is Pullback a Warning or Just Noise? Technical Insights | Episode 274

By Jason McIntosh | 20 December 2024

ASX 200: Is This Pullback a Warning or Just Noise?

December has been a month of contrasts for the ASX 200. The index hit an all-time high on the first trading day of the month, only to follow up with three consecutive weeks of declines. This raises a crucial question: Is the recent pullback just part of a healthy uptrend, or is it signaling something more serious?

Let’s break it down.

---

The Big Picture: Trends in Context

This is only the second time in 2024 that the ASX 200 has seen a three-week decline. The last occurrence was in April, following another rally to an all-time high. That period ultimately resolved with the market stabilizing and moving higher.

While history doesn’t repeat exactly, it often rhymes. Just as in April, concerns about inflation and interest rates are weighing on sentiment. However, pullbacks are a normal feature of a rising market, and the ASX 200’s underlying trend remains upward—for now.

---

A Closer Look: Moving Averages and Structural Changes

The ASX 200 has dipped below its 50- and 100-day moving averages, a development that warrants attention. Historically, brief excursions below these averages have been part of a healthy trend.

However, the key risk lies in what happens next. If prices fail to rebound and instead consolidate below declining moving averages, this could signal a structural change in the market. Such a shift would increase the likelihood of further declines.

---

False Breakout? What the Equal-Weighted ASX 200 Shows

The equal-weighted ASX 200 provides additional context. This index has not only broken below its moving averages but also returned to its previous trading range, negating the bullish breakout from September.

This “false breakout” adds to the technical damage and suggests some vulnerability in the current trend. While this doesn’t guarantee further declines, it does serve as a warning sign for investors.

---

How to Approach This Market

Given the current dynamics, caution is key. Here’s how I’m navigating this environment:

• Focus on the Bigger Picture: Despite the pullback, the broader trend remains upward. As long as individual stocks stay above their exit points, I’m giving them room to move.
• Avoid Panic Selling: Selling during every pullback often turns a strong year into a mediocre one.
• Use Stop Losses Strategically: Trailing stops protect capital when a stock’s trend ends. Two of my best-performing stocks recently hit their stops, and while exiting was difficult, it was essential to manage risk.
• Hold Cash When Necessary: Sharp pullbacks like this are not the time to aggressively buy the dip. I prefer dips where prices move sideways into a strong trend.

---

Conclusion: A Pullback or a Trend Change?

While the ASX 200’s recent pullback has caused some technical damage, it’s too early to declare a trend change. Many pullbacks throughout 2024 have looked ominous, only to resolve with the market moving higher.

For now, the odds still favor this being a routine pullback rather than the start of a larger decline. But monitoring price action closely and adhering to a disciplined, rules-based strategy will be critical in the weeks ahead.

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

---

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.

Try a no obligation FREE 14-day trial of Motion Trader, and see what an algorithmic trading approach could do for you.

Take a Free 2 week Motion Trader trial

---

Video Timestamps

00:00 Intro

00:35 ASX 200 has 2 notable events (which one matters most?)

02:05 Could the ASX repeat this unsettling sell-off?

05:35 Make sure you’re aware of THIS structure.

09:45 This is what I’m doing NOW.

13:00 SP500 pulls back (but THIS is more worrying).

17:00 Many people will interpret this indicator incorrectly.

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).