At times it pays to look at the big picture. A monthly chart shows the ASX 200 recovering from 2 months of uncertainty (February – March), when the index broke its new support level at 6000. Recovery is almost complete, with the index testing the last level of resistance at 6150. Breakout would signal a primary advance but bearish divergence on Twiggs Money Flow (13-week) warns of selling pressure. Another test of support at 6000 is likely.
The ASX faces a bi-polar medium-term outlook with its two largest sectors headed in opposite directions.
Source: S&P Dow Jones Indices
Mining is going gang-busters with the ASX 300 Metals & Mining Index offering a medium-term target of 4200 after breaking through 3800.
But the largest sector, Finance, is in trouble. The impact of the Royal Commission is likely to slow bank lending growth and APRA’s efforts to raise bank lending standards will also adversely affect declining housing growth. The ASX 300 Banks Index remains in a primary down-trend, having broken support at 8000. Retracement respected the new resistance level at 8000 and breach of support at 7700 would signal a test of the 2016 low at 7200.