Is the ASX 200’s Pullback a Warning Sign or a Routine Dip? | Episode 272

By Jason McIntosh | 13 December 2024

Is the ASX 200’s Pullback a Cause for Concern?

The ASX 200 started December at an all-time high but has since pulled back by around 3%, dipping below the 50-day moving average. This raises a key question for investors: Is this just another routine dip, or could it signal something more serious?

To answer this, let’s explore how the current pullback compares to previous market movements and what history tells us about these patterns.

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What Makes This Pullback Different?

Looking back over the year, we’ve seen several pullbacks — most notably in October, August, and earlier in March. Each of these pullbacks followed a rally to an all-time high, only to retrace back to the 50-day moving average. This pattern is typical of a rising market trend, where periodic corrections provide a healthy pause before the next move higher.

Importantly, none of these pullbacks signaled a market top. Instead, they were part of a broader bullish structure. So far, there’s little to suggest this pullback is different.

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How Market Tops Typically Form

While the ASX 200 remains in a bullish structure, it’s worth reviewing how major market tops usually unfold. Contrary to popular belief, markets rarely peak and collapse overnight. Instead, they go through a topping process, which involves:

1. Price Consolidation: Markets consolidate below declining moving averages.
2. Structural Changes: Prices remain below key levels for an extended period.
3. Accelerated Declines: Once structural support breaks, the market trends lower.

For example, the last major high in September 2021 took eight months to form before the market entered a significant decline. Even during the Global Financial Crisis (GFC), which unfolded quickly, there were still clear warning signs as the structure changed.

At present, the ASX 200’s price action doesn’t exhibit these characteristics, suggesting this is a typical pullback rather than a structural shift.

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Could a Range Develop?

Another possibility is that the market consolidates within a range. This is supported by recent price action on the equal-weighted ASX 200, where all 200 stocks are given equal influence. Prices are nearing key support levels, and a period of consolidation could precede the next move higher.

Key support levels to watch:

• 1,930: Recent lows and previous highs provide a critical structural support level.

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What Should Investors Do Now?

For now, the market remains in a bullish structure. Moving averages are rising, and prices are holding above key support levels. While consolidations can test patience, they are part of a healthy market cycle.

To navigate this environment effectively:

• Follow the Trend: Focus on price action rather than reacting emotionally to short-term dips.
• Use Trailing Stops: Wide stops allow you to stay with trends while protecting capital during deeper corrections.
• Stay Disciplined: Consolidations often shake out less disciplined investors. By sticking to a systematic approach, you increase your odds of staying on strong trends.

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Conclusion: Consolidation, Not Collapse

While no one can predict the future, the odds favor that the ASX 200 is currently experiencing a consolidation within a broader bull market. Until price action proves otherwise, investors should view pullbacks as opportunities to stay positioned for the next move higher.

However, as always, trailing stops are essential. They act as your safety net, protecting your capital if the market unexpectedly turns against you.

Want to stay ahead of market trends? Learn more about how a rules-based strategy can help you navigate the market with confidence.

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

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Video Timestamps

00:00 Intro

00:50 ASX 200 below the 50-day moving average (Is this serious?)

03:20 The common mistake that costs investors profits.

03:45 This is how major tops form (Learn the signs).

07:10 Be ready for this scenario—I’ve seen it many times.

11:50 The overlooked S&P 500 indicator (Don’t miss this).

15:00 Why most investors miss key S&P signals.

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).