ASX 200: Navigating a Potential Turning Point | Episode 280

By Jason McIntosh | 17 January 2025

The ASX 200 is at an intriguing juncture, with signs of potential topping patterns emerging alongside continued bullish momentum. Investors face conflicting signals, making this a critical period for careful portfolio management. Let’s explore the latest technical developments, sector insights, and strategies to navigate the evolving market environment.

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Is the ASX 200 Forming a Topping Pattern?

The ASX 200 has been showing signs that could point to a potential topping phase. One noteworthy technical formation is a developing head and shoulders pattern, a classic bearish indicator.

Key Observations:

• Head and Shoulders Formation: The left shoulder and head are already in place, and the right shoulder appears to be forming. This pattern suggests waning buying interest, with sellers beginning to dominate.
• December Weakness: In December, the ASX 200 broke below its November low, ending a sequence of rising lows—a sign that buyers are becoming less enthusiastic.
• Key Levels to Watch: The January low is emerging as a critical support level. A break below this level could lead to further declines and confirm the bearish pattern.

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The Bullish Case: Trends Remain Intact

Despite the bearish signals, the ASX 200’s primary trend remains upward, supported by rising moving averages and consistent buying interest at key levels.

Key Observations:

• Supportive Moving Averages: The ASX 200 continues to hold above its 50- and 100-day moving averages, a hallmark of an uptrend.
• Potential Consolidation: The market could move sideways in the coming weeks or months, similar to previous consolidations seen in 2024. This period of “chop” could act as a base for future gains.
• Wide Trailing Stops: Using wide trailing stops allows investors to stay in positions through these consolidation periods while protecting against sudden trend reversals.

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Spotlight on Financials: A Key Market Driver

The financial sector, a cornerstone of the Australian market, has been trending higher for over a year and continues to show resilience.

Key Observations:

• Dip Buying: Recent pullbacks have found support near the moving averages, with strong rebounds over the last few days.
• Historical Patterns: Similar pullbacks in April, August, and October 2024 were followed by significant rallies. The odds favor a repeat of this pattern, though caution remains warranted.
• Key Support Level: A break below this week’s low in financial stocks would signal weakening buyer interest and could indicate a broader trend reversal.

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Strategies for Navigating This Market

Managing portfolios during periods of conflicting signals requires a disciplined and flexible approach. Here’s how to approach the current environment:

1. Stay Aligned with the Trend: The ASX 200’s primary trend remains upward. Avoid bearish bets unless there’s a clear breakdown below key levels.
2. Monitor Key Levels: Pay close attention to the January and December lows. A break below these levels could signal a shift to a bearish trend.
3. Use Trailing Stops: Protect gains and limit downside risk by employing wide trailing stops on profitable positions.
4. Be Cautious, Not Fearful: The market doesn’t move in straight lines. Avoid overreacting to short-term fluctuations but remain alert to warning signs.
5. Focus on Resilient Sectors: Sectors like financials, which continue to show strength, could offer opportunities during periods of consolidation.

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Key Takeaways for Investors

• Conflicting Signals: The ASX 200 shows potential signs of a topping pattern but remains in an uptrend supported by rising moving averages.
• Financial Sector Resilience: Dip buying in financial stocks suggests ongoing strength, though key support levels should be monitored.
• Balanced Approach: Stay bullish while maintaining caution. Use wide trailing stops and focus on stocks in uptrends to manage risk effectively.

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Final Thoughts

The ASX 200 is at a pivotal moment, with technical signals suggesting both bullish and bearish possibilities. By staying disciplined, managing risk, and focusing on resilient sectors, investors can navigate this uncertain period with confidence.

At Motion Trader, we help investors build portfolios based on systematic, rules-based strategies, ensuring they’re equipped to handle all market conditions. Whether markets trend higher or consolidate, our approach focuses on minimizing risk and maximizing long-term opportunities.

👉 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

00:34 ASX 200: Is this a topping phase or just a trend pause?

01:15 Get ready for this bearish scenario

03:40 My bias in these situations is to do THIS

05:20 Don’t overlook what this key sector is doing

07:05 Consider this approach to managing risk

08:30 S&P 500 delivers a big surprise (what does it mean?)

11:05 This is the key risk for US stocks

13:20 Ego can cost these people a lot of money

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).