ASX confirms a bear market

The ASX 200 broke primary support level at 7000, confirming a bear market.

ASX 200

Long-term interest rates are rising, with bond ETFs falling.

Australia: Bond ETFs

A-REITs respected resistance at the former primary support level of 1500, confirming the primary down-trend. Trend Index peaks below zero warn of strong selling pressure.


Financials fell dramatically last week, testing primary support at 6000, as the prospect of falling residential property prices and rising defaults looms. Higher interest rates and wider net interest margins should offset this to some extent. Expect retracement to test resistance at 6000. Follow-through below this level would confirm a primary down-trend and strengthen the overall bear market (Financials have been one of the stronger sectors).

ASX 200 Financials

Consumer Discretionary respected resistance at 3000, signaling another decline with a target of 2600 [3000-400]. Trend Index peaks below zero warn of strong selling pressure.

ASX 200 Consumer Discretionary

Consumer Staples broke support at 13K, with respect of the new resistance level warning of another test of 12K.

ASX 200 Consumer Staples


Utilities continue their primary up-trend, rising Trend Index troughs indicating strong buying pressure.

ASX 200 Utilities

Industrials are headed for another test of support at 6350. Breach would warn of another test of primary support at 6000.

ASX 200 Industrials

Telecommunications broke support at 1400, signaling a primary down-trend. Trend Index peaks below zero warn of strong selling pressure. Breach of support offers a target of 1200 [1400-200].

ASX 200 Telecommunications

Health Care is consolidating below 42.5K. Reversal below 40K would warn of another test of primary support at 37.5K. A Trend Index peak close to zero would warn of fading buyer interest.

ASX 200 Health Care

Information Technology continues in a primary down-trend, with Trend Index peaks below zero warning of selling pressure. Follow-through below 1400 would offer a target of 1100 [1500-400].

ASX 200 IT

The Energy sector is advancing strongly, while Trend Index troughs above zero signal buying pressure. The prospect of Chinese lockdowns easing is likely to boost demand for oil and gas, sending prices soaring.

ASX 200 Energy

Metals & Mining respected resistance at 6250, warning of another test of 5500. Declining Trend Index peaks suggest buyer interest is fading. Respect of support at 5500 would signal that the up-trend is intact but breach seems more likely and would offer a target of the November ’21 low at 4750.

ASX 300 Metals & Mining

The broad DJ Industrial Metals Index respected resistance at 200, while Trend Index peaks below zero warn of strong selling pressure. Easing of lockdowns in China may increase demand but a bear market remains likely.

DJ Industrial Metals Index

Iron ore is also undergoing a correction. Breach of support at 125 would warn of another test of primary support at 90.

Iron Ore

The All Ordinaries Gold Index is again testing support at 6000, while Trend Index below zero warns of selling pressure.

All Ordinaries Gold Index

The price of Gold in Australian Dollars, however, is trending upwards, with rising Trend Index troughs indicating increased interest from buyers. Expect a test of A$2800 per ounce. Breakout would offer a target of A$3400 [2800 + 600].

Gold in Australian Dollars


ASX 200 broke support at 7200, confirming a bear market. Rising long-term interest rates and a poor global economic outlook are expected to weaken most sectors, while easing of China’s lockdown restrictions should provide some relief to energy and metals.

Our weighting for ASX sectors is:

  • A-REITs: heavily underweight
  • Financials: neutral
  • Staples: neutral
  • Discretionary: heavily underweight
  • Utilities: overweight
  • Industrials: neutral
  • Telecommunications: underweight
  • Health Care: neutral
  • Information Technology: heavily underweight
  • Energy: heavily overweight
  • Iron ore & Base Metals: underweight
  • Critical Materials (e.g. Lithium and Rare Earth Elements): heavily overweight
  • Gold: overweight

ASX Leading Sectors

The ASX 200 broke resistance at 6800, signaling a fresh advance. Expect retracement to test the new support level. Respect would strengthen the bull signal, confirming a fresh advance.

ASX 200 Quarterly

At the same time, fundamentals are distinctly bearish, with falling retail sales and dwindling GDP growth. So, what sectors are driving the index?

A comparison of the ASX 200 sector indices shows that the advance is led by Healthcare and Information Technology sectors, while the laggards are Financials, Utilities and Telecommunications.

ASX Sector Comparison

Top performers in Healthcare (with forward price-earnings ratio where available) are:

  • Polynovo (PNV) – negative eps
  • Clinuvel (CUV) – 79
  • Pro Medicus (PME) – 137
  • Nanosonics (NAN) – 158
  • Resmed (RMD) – 55
  • CSL (CSL) – 49
  • Fisher & Paykel Health (FPH) – 55

ASX 200 Healthcare Top Performers

In Information Technology, top performers are:

  • Afterpay (APT) – negative eps (forward pe 476)
  • Nearmap (NEA) – negative eps
  • Bravura (BVS) – 37
  • Appen (APX) – 58
  • Xero (XRO) – 5998 (forward pe 270)
  • Altium (ALU) – 63

ASX 200 Information Technology Top Performers

The graph below compares PE Ratios on the y-axis to required Annual Growth in earnings on the x-axis. The curve plots the compound annual growth (CAGR) required for a 20-year income stream to deliver a 12.5% return on investment.

PE Ratio compared to Expected Growth

What this illustrates is that PE Ratios above 50 should be treated with caution as they assume the ability to maintain high CAGR in earnings (e.g. above 20%) for long periods. Even when growing off a low base that can be difficult to achieve.

Bottom line: many stocks in these sectors (Healthcare and IT) are highly-priced and vulnerable to strong draw-downs.

What are we afraid of? Universal healthcare in market-orientated health systems

From the new IEA (Institute of Economic Affairs) report on the UK’s NHS (National Health System) by Kristian Niemietz 2 Apr 2015:


…….The NHS is often unduly eulogised for minor achievements, because it is being held to unrealistically low standards. The NHS should not be compared with the state of healthcare as it was prior to 1948, or with a hypothetical situation in which all healthcare costs had to be paid out of pocket. Rather, it should be compared with the most realistic alternative: the social health insurance (SHI) systems of Continental Europe, especially the Netherlands, Switzerland and Germany.

SHI systems are far more market-oriented, competitive and patient/ consumer-driven than the NHS. They show a much greater plurality in both provision and financing, usually with a mix of providers (public, private for-profit and private non-profit) and a mix of payers (for-profit insurance, non-profit insurance, out-of-pocket payments, supplementary insurance). For example, in Germany, fewer than half of hospitals are government-owned.

SHI systems still redistribute from the healthy to the sick, and from the rich to the poor. This happens mostly through risk-structure compensation schemes, which redistribute from insurers with a high proportion of ‘good risks’ to those with a high proportion of ‘bad risks’ and thereby make ‘cherry-picking’ of healthier clients economically unviable. Low-income earners also receive demand-side subsidies to help them pay their health insurance premiums.

SHI countries consistently outperform the NHS on measures of health outcomes, quality of healthcare provision and efficiency. Cancer and stroke survival rates are higher, fewer patients suffer from complications after a hospital operation, and the number of deaths that could have been prevented through better healthcare (‘mortality amenable to healthcare’) is lower. On the latter measure, the UK could avoid at least 14 unnecessary deaths per 100,000 inhabitants each year if it rose to the standards of the SHI countries.

SHI systems do not just outperform the NHS in terms of average outcomes, they also achieve more equitable outcomes. The extensive use of market mechanisms does not have to conflict with the aim of reducing health inequalities. According to reasonable indicators of equity, the performance of the NHS is about average amongst developed countries; the performance of SHI systems are amongst the best in the world.

The only visible advantage of the NHS model over SHI models is that it is better at containing costs. However, part of the difference is explained by the fact that SHI systems make it much easier for patients to top up and/or upgrade statutory healthcare privately if they wish. NHS patients are not allowed to do this……..

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