ASX 200 Sector Breaking Higher | Episode 136

By Jason McIntosh | Published 2 June 2023

Trade the Trend is a weekly video focusing on where the stock market is going. It’s for investors and traders looking for technical analysis of the ASX stocks, the ASX200, the SP500, as well as stock markets and commodities markets in general. Jason uses technical analysis of stocks and trend following techniques to help you piece together the world’s biggest puzzle.

Where is the Stock Market Heading?

00:00 Intro

00:30 ASX 200 makes a new 8 week low (is there more to come?)

02:12 This is causing the ASX 200 to slide

04:30 What I’m seeing (and doing) in the Small Ords

05:33 I’m watching this sector with great interest

07:57 Should you buy the rebound in gold?

09:20 Look at what uranium just did!

12:50 This could be an opportunity in copper

Transcript

Please note: Charts available from video

This video is going to focus on the ASX 200. I’m also going to have a look at gold, copper, and uranium, so make sure you stick around for that. I’m going to cover the S&P 500 in a separate video. You can view the SP500 video here. As always, a general commentary and doesn’t take your personal situation into account. With all of that said, let’s get into our first chart.

So, here we go. We’ve got the ASX 200 up on the screen. And the price action continues to whipsaw. And last week, we had a nice bounce off the Fibonacci retracement. So, let me just draw that in. We use the low point from March and the high from April. We get this Fibonacci range. And the 50% was coming in right at last Friday’s low. The market had a nice bounce off that, but it didn’t get too far. It got back to the moving averages. So, I got the 50 and the 100-day moving averages, and that was enough to repel the advance. And the market has since come back down and has traded at the bottom of the Fibonacci region and is at an eight-week low.

We’re also now clearly below these moving averages. And I think this opens the window for further falls, for further weakness. Now, I don’t necessarily think it’s anything too dire. I’m not talking about a big sell-off, but the potential for weaknesses is certainly there. I think whenever a market’s below the moving averages, it becomes vulnerable. And we’ve got a small series of lower lows. We really need to see this sequence of lower lows and lower highs broken before we can start getting encouraged, really quite positively encouraged about the ASX 200’s price action.

And I think one of the drivers of this… First of all, we do remain in this large range. But in more recent times, one of the drivers of this lull in activity is the banks. So, just having a look at CBA, for instance, so the overall structure for CBA is positive. We’ve got this big uptrend from 2020 through into 2022, and then we’ve got this large sideways consolidation. Now, sideways consolidations are nothing unusual following big advances, but they can drag on and you just don’t know when they’re going to come out of those holding periods.

Now, just looking at the current setup in CBA, we’ve got this sell-off from the February high and the market is coiling up into quite a tight range. And it’s doing so below the moving averages, which are declining. So, each time the CBA has moved back up towards these moving averages, it’s triggered a sell-off. And then just the most recent one has been in the last week, back to the moving averages and a sell-off. So, I’d be watching just this bottom of this range the market is in. You can draw in a triangle-type trading range. So, I’d be watching the lower end here. And if CBA breaks to the downside, it does open the possibility of the stock coming back towards this low back in June.

When you look at some of the other banks, you’ll see similar type of price action. Westpac’s already broken down below its equivalent level. So, it’s pointing to potentially more near-term weakness in the bank, which is, of course, a drag on the ASX 200. If you look at the big miners like BHP and Rio, they’re below their moving averages. They don’t look like they’re about to collapse, but they don’t look like they’re about to rally either. So, this is one of those reasons I think that it’s hard to see the ASX 200 sustaining a rally while you have the big banks and the big miners in technically not hugely weak but certainly not strong positions, looking like there’s further consolidation to be worked through.

Now, going over and having a look at the Small Ords, it’s had a couple of encouraging days in that we’ve seen quite a nice rally on Friday off the low from earlier in the week, but it is very much still right smack bang in the middle of the range. It’s below the moving averages. Moving averages are starting to turn lower again. But as you can see, the moving averages have whipsawed during this range, and that’s what they do.

So, I think when I look at this, we want to see the price get back above the moving averages, but there’s really I think not a hurry to do a whole lot on an overall basis. It can be the individual opportunities within the indices, but on an overall basis, this remains a range-bound market. I continue to exit stocks that are weakening, that are hitting my exit levels, and I’m continuing to buy a few stocks that are showing some strength and breaking out. But the index as a whole, not too exciting at the moment.

Now, I will show you one area that I am continuing to watch with quite a bit of interest, and it’s the local tech sector. And I showed you this. I had this in the video about four weeks ago. I think it was around the 12th of May. So, just in here, I was talking about it last. And the thing I was noting was that it looked like maybe we had a base in place and we were starting to get some upward momentum from that base. Come back to the moving averages, the 50-day moving average and we’re starting to move higher.

What I like to look for in these emerging opportunities, I like to look for these compression patterns because they can produce some really good entry points. So, this was the first compression pattern we had in the tech index, and then we had another one just through here, just around when I was talking about it four weeks ago. You can see the price action started to just coil up before breaking higher. And we’ve continued to see some strength.

So, I think whilst the ASX 200 isn’t looking particularly exciting at the moment, there are still opportunities around, and it’s a case of finding them. It’s about using the momentum, looking for the stocks with the positive momentum, and looking for asymmetric entry levels where the risk is relatively low in comparison to the potential reward. There are naturally fewer of those opportunities during this phase of the market cycle where the market is correcting and consolidating, but as we can see with the tech sector, they are still there. It’s just a case. You’ve got to find them amongst the stocks which aren’t doing very much.

Now, I’ll have a look at some commodities in a moment. But first of all, if you’re getting some value, please hit that like button. Please leave a short comment, just “Hey, thanks for the video.” Just tells YouTube you’re watching, that you’re engaging, and YouTube will show others. That helps a lot. Hit that subscribe button if you haven’t already, and come over to motiontrader.com.au and see what I’m doing there and see whether the trend identification strategies I use and the risk management techniques might be able to help with how you manage your own portfolio and find your ideas.

Now, let’s jump to these commodities. Gold. Well, we spoke about the potential for a bounce off the 100-day moving average last week, and we’ve got that bounce, typical place, very natural place to get a bounce after you get a sell-off. Market’s come back to these averages and you tend to get that reaction in the opposite direction. But that said, my feeling is that gold is capped for a while. I think gold is going to be capped below this big resistance at around 2,080 for possibly several months. I could be completely wrong. Maybe that’s all the pullback that’s needed and we’re going to see it ratchet higher and break upwards, in which case, I’m happy to go with the breakout. I’m happy to go with individual gold stocks that are setting up nicely and meet my buy criteria of momentum and breakouts. But that said, I think the excitement in gold is over for the time being. We know the level to watch, so let’s just see how this continues to play out.

Jumping down to copper. And copper’s had a week where it hasn’t really… Copper is trading below its moving averages. It’s not doing a great deal. And I can’t show you copper at the moment because we’re not getting the internet feed.

So, what I’m going to do, I’m going to jump over to uranium. And uranium’s been the really interesting mover of the week. So, what’s happened with uranium is we’ve actually got a breakout in this coiling pattern. So, I’ve been speaking about this in recent times, uranium had been coiling up in this pattern. And just in the last week, we got the breakout from this pattern, and it’s taken the price right up to this resistance point which comes in on this uranium ETF at around $17.80. It’s not a precise resistance. You can see it meets this high point here, meets a high point back there in February, but then this is just general areas where the price has done some work. So, it’s not a pinpoint resistance area, but we can see it’s a general zone where there’s been activity.

What I’m also interested in is the volume. You can see the volume. There’s been a spike in volume in this uranium ETF over the last couple of days as the price has moved up. This is really interesting stuff. We’ve been waiting for the uranium to work through this consolidation for many, many months, for over a year. Maybe this is it. Maybe this is the point where we’re going to get some sustained upward momentum. The next few days are going to be really interesting. Does uranium hold on to these gains, which have been sharp, no doubt about it? There have been sharp gains in the last couple of days. Will it hold on to these gains and maintain this breakout?

Interesting, looking at some of the uranium stocks, just looking at Cameco, which is a stock we’ve been tracking for quite a while, it’s also broken out of this triangle-shaped trading range. And look at the volume, big volume breakout. So, this is the price action we want to see. This is where it gets really interesting. Are we moving out of this sideways phase into a new trending phase in uranium? It’s something we want to watch closely and something which could be really starting to get some traction now.

But it’s also important though, country risk. Country risk has come to the fore again. Just this week, we saw Paladin, being a popular local stock, get sold off heavily midweek on speculation or talk out of Namibia that there could be some government nationalization or the move of the government to take a greater stake in some of these uranium or natural resources projects. And that’s where Paladin is largely placed in Namibia. So, country risk is always an issue with natural resource stocks.

There was a South American company talking about nationalizing its lithium projects not long ago, so it’s always a risk. So, something like Cameco is it removes a lot of that country risk because it’s largely based in Canada. Locally, we’ve got Boss Energy, which is largely based in South Australia. It’s a lot stronger than something like Paladin or Deep Yellow. Risk-reward rise asymmetry, it’s like we’re pressing on resistance, so it may not be the buying point. But really interesting stock to watch with this activity in uranium.

Now, let’s just jump across to copper now. Everything’s finally gone and loaded up for us. Not a lot happening in the copper price. It’s below these moving averages which are in decline. So, there’s not a lot to inspire too much in the copper price itself. But what has been interesting is to look at the copper ETF. So, this is a U.S.-listed Global X Copper Miners ETF, or COPX is the ticker code. What I’m wondering is we’ve got this nice upward leg since from around September last year, and is this a zigzag sideways pattern? So, will we find that this is currently…will this be the bottom of the range in this copper ETF? It’s a really interesting one to consider.

And we’ve also got the prospect that the price has come back to support. And if we put some Fibonacci retracements on, we can see we’re right back to that Fibonacci range. So, I don’t like buying dips below moving averages, but this is one I want to keep an eye on. And maybe this will shape up as an entry point into a copper ETF.

So, hopefully, that’s been interesting. Let’s call that a wrap for this week. Thank you for joining me, as always, and I look forward to coming back and talking to you next week. Until then, bye for now.

Please see video for more detailed analysis and charts

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