The resources sector is strengthening.
The ASX 300 Metals & Mining index broke resistance at 4450, suggesting another advance. Buoyed by rising iron ore prices, the breakout offers a target of 4800.
Talk of an imminent trade deal lifted iron ore above previous support at 90. Expect another test of primary support at 80, but respect would confirm that a base has formed above 80.
Financials, on the other hand, are still weak.
The ASX 300 Banks index continues in a down-trend. Expect retracement to test resistance at 7600 but reversal seems unlikely at this stage. Respect of resistance would confirm a target of 6800.
The ASX 200 REITs index broke support at 1600 after a false break through 1650. Typical of a bull trap, expect a decline to test support at 1500.
A bearish outlook for banks is keeping the ASX 200 hesitant. The daily chart shows narrow consolidation below resistance at 6750; a bullish sign. Breakout is likely but the Trend Index below zero warns that buyers are cautious.
We maintain low exposure to Australian equities, with a focus on defensive and contra-cyclical stocks, because of our bearish outlook.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.