Australia: S&P/ASX 200 (.AXJO) set for more losses

Australia: S&P/ASX 200 (.AXJO) set for more losses

Australia: S&P/ASX 200 (.AXJO) set for more losses

The Australian sharemarket is set for more losses when trading resumes on Monday, as the coronavirus induced shock that took most major markets into correction territory last week shows no sign of abating.

Bets on interest rate cuts have escalated dramatically since the equity market sealed its fastest correction in history on Friday. A correction is a 10 per cent drop from the market’s cyclical peak.

“The case for a Reserve Bank of Australia rate cut is growing by the hour,” said Matthew Sherwood, head of investment strategy for multi-asset at Perpetual Investments. “I think a policy easing is probably warranted.” The Reserve Bank meets on Tuesday.

Monetary policy well is dry

“The only thing that the central banks can do is signal to markets by cutting rates and extending quantitative easing programmes is that they will not let financial conditions tighten,” Mr Sherwood said. “That won’t help the economy per se but it will potentially put a limit to, or slow down, the very aggressive downward momentum in markets.”

Central bank firepower is also low after the global financial crisis. “What we have to remember, having entered these uncertain times, is that the monetary policy well is dry,” said Steve Miller, an adviser at GSFM.

“There’s not much that the authorities can do to resuscitate markets. The Federal Reserve can cut but they haven’t got that much by which they can cut. In some places the fiscal policy well is dry as well,” Mr Miller said.

The strategist is not convinced that markets are set for a quick rebound after last week’s sell-off, pointing out that ahead of the market meltdown last week, markets were priced for near perfection.

“Earnings are being threatened with disruptions to supply chains and, having recognised that, markets are saying that valuations need to change,” Mr Miller said. “They are not going to rebound and are indeed vulnerable to further downside moves.”

Others are hopeful for a quick economic recovery after a rapid drop-off, which may also support earnings and share prices.

“Our view has been this coronavirus like SARS and other epidemics will be an event not a new normal,” said Lisa Kaufman CEO of LaSalle Investment Management Securities.

“The question is how V-shaped or U-shaped is the impact as this transitions from a China-led issue,” she said. “Our view is that this will be more V-shaped than U-shaped.”

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

The projected upper bound is: 6,618.62.

The projected lower bound is: 6,247.44.

The projected closing price is: 6,433.03.

Candlesticks

A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 2 white candles and 8 black candles for a net of 6 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 3.4144. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 6 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 20.24. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 25 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -196.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 5 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 4 period(s) ago.

Rex Takasugi – TD Profile

S&P/ASX 200 closed down -216.700 at 6,441.200. Volume was 149% above average (trending)(neutral) and Bollinger Bands were 155% wider than normal.

Open     High      Low     Close     Volume___
6,657.9006,657.9006,426.8006,441.2001,524,007,296
Technical Outlook 
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 6,933.70 6,939.33 6,714.98
Volatility: 23 17 15
Volume: 930,602,752 624,729,856 635,426,560

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

S&P/ASX 200 is currently 4.1% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of .AXJO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .AXJO and have had this outlook for the last 2 periods. Our momentum oscillator is currently indicating that .AXJO is currently in an oversold condition.

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