Some good discussion on our forum regarding current high stock valuations, based more on hopes than on earnings.
This chart of Price-Earnings ratios highlights the problem. PEs for both the MSCI World Index (ex-Australia) and the ASX 200 are close to historic highs (after the Dotcom bubble).
Strong earnings growth would soon fix this but there is little sign of that at present.
The ASX 200 is testing resistance at 5500. Rising Money Flow indicates selling pressure has ended. Breakout above 5500 would complete a bear trap, indicating a primary advance to 5800*.
ASX 300 Banks Index followed through above 8000 after a brief retracement respected the new support level. Target for the primary advance is 8800*. A further secondary correction to test the new support level at 8000, however, should not be ruled out. A Twiggs Money Flow trough above zero would strengthen the bull signal.
* Target medium-term: 8000 + ( 8000 – 7200 ) = 8800
The ASX 200 broke through short-term resistance, a bullish sign, and is testing long-term resistance at 5500. In terms of classic Dow Theory, the primary down-trend is intact until there is a breakout above 5500. Today’s small doji candle indicates hesitancy but bullish divergence on 21-day Twiggs Money Flow signals medium-term buying pressure. Breakout above 5500 would also complete a bear trap, where breach of support is quickly reversed and followed by breakout to a new high. This is a powerful bull signal and would offer a target of 5800* for the primary advance.
* Target medium-term: 5500 + ( 5500 – 5200 ) = 5800
The ASX 200 is again running into resistance, signaled by a hammer after the recent rally. In terms of Dow Theory, the primary down-trend is intact but retracement that respects the former primary support level of 5200 would suggest a bear trap. Recovery above 5500 is still in doubt but would offer a bull signal.
ASX 300 Banks Index broke out above 8000 but this week’s short candlestick body warns of hesitancy. Expect retracement to test the new support level. Failure of support would warn of a bull trap. Respect of support is as likely, however, and would confirm a primary up-trend with a target of 8800*. Recovery of Twiggs Money Flow above zero is still tentative at this stage.
* Target medium-term: 8000 + ( 8000 – 7200 ) = 8800
The ASX 200 is testing primary support at 5200. Decline of Twiggs Money Flow below zero, following a large bearish divergence, warns of strong long-term selling pressure. Breach of support would signal a primary down-trend with an immediate target of 4750.
Two short weekly candlesticks suggest the ASX 200 rally has stalled at 5500. Bearish divergence on Twiggs Money Flow warns of selling pressure. Reversal below the lower trend channel would warn of a test of primary support at 5000/5100. Breakout above 5600 is unlikely.
The ASX 300 Banks Index is testing resistance at 8000. Declining Twiggs Money Flow still warns of selling pressure. Breakout above 8000 would signal a primary up-trend but I would be cautious and wait for retracement to respect the new support level. There are some good fundamental reasons, like the real estate/apartment bubble, that suggest a reversal would be premature.
The ASX 200 is headed for another test of resistance at 5600. Bearish divergence on Twiggs Money Flow warns of selling pressure. Breakout above 5600 is unlikely and breach of the lower trend channel would warn of a test of primary support at 5000/5100.
* Target calculation: 5400 + ( 5400 – 5100 ) = 5700
The ASX 300 Banks Index formed a bullish higher trough above 7200 and is again testing resistance at 8000. Declining Twiggs Money Flow, however, warns of selling pressure. Respect of resistance remains likely. Breakout, however, would signal a primary up-trend.
The ASX 200 penetrated its lower trend channel, indicating that the up-trend is slowing. This week’s long tail indicates short-term buying pressure but not necessarily a reversal. Breach of primary support at 5100 would warn of another decline (4700). Bearish divergence on Twiggs Money Flow indicates long-term selling pressure.
The ASX 300 Banks Index is consolidating between 7200 and 8000. Declining Twiggs Money Flow peaks warn of long-term selling pressure but this week’s blue candle suggests short-term support. A test of primary support at 7200 remains more likely but a failed swing that recovers to 8000 would be a bullish sign. Breakout above 8000 (still unlikely) would signal a primary up-trend.
The ASX 200 encountered resistance at 5300 and is likely to test support at 4900/5000, with breach of the lower trend channel and declining 13-week Money Flow warning of selling pressure. Breach of support at the recent low of 5050 would confirm.
The Banks are weighing on the index, with APRA warning of further capital increases and concerns over a slowing housing market, particularly apartments. The ASX 300 Banks Index is testing primary support at 7200. Breach would offer a target of 6400*. Weakness in this sector is likely to affect the entire market.
* Target calculation: 7200 – ( 8000 – 7200 ) = 6400
The ASX 200 is growing in confidence. Having penetrated its descending trendline, to suggest a bottom, the index rallied to test resistance at 3400. Rising troughs on 13-week Money Flow suggest buying pressure. Retracement that respects support at 5200 would strengthen the signal, while breakout above 5400 would confirm a primary up-trend.
