Australia: S&P/ASX 200 (.AXJO) sinks to six-month low on fears of bank weakness

Australia: S&P/ASX 200 (.AXJO) sinks to six-month low on fears of bank weakness

Australia: S&P/ASX 200 (.AXJO) sinks to six-month low on fears of bank weakness

The ASX dropped to its lowest level in six months on Wednesday amid concerns the profit margins of major banks will be squeezed by their decision to pass on the full extent of Tuesday’s RBA rate cut to mortgage holders, as requested by the Prime Minister.

The financial sector slumped 2.7 per cent and dragged 53 points away from the S&P/ASX 200, which closed 110 points, or 1.7 per cent, lower at 6325.4 points. The benchmark index has now lost 837 points, or 12 per cent, since hitting a record high on February 20.

Until now, markets have surged after interest rate cuts because it drives more money into equities. But this week’s rate cuts from the Reserve Bank of Australia and the US Federal Reserve failed to salve investor concerns about the economic impacts of the rapidly spreading coronavirus.

Aberdeen Standard Investments senior global economist James McCann said the Federal Reserve’s 50-basis-point cut displays panic.

The information technology sector slumped 4.2 per cent on Wednesday, while the energy sector slid 2.5 per cent.

Xero lost $2.80, or 3.5 per cent, to $77.14 and Afterpay fell by $1.47, or 4.2 per cent, to $33.19. WiseTech dropped 5.3 per cent to $15.70.

Healthcare was under pressure as Cochlear dropped by $10.50, or 4.8 per cent, to $207.50. Cochlear has now dropped $44 since the market topped out in late February. Ramsay Health fell $3.05 to $67.12 after dropping as low as $65.06 during the session.

The banks remained under the hammer, as analysts questioned their ability to maintain dividends in a lower interest rate environment. Commonwealth Bank fell by $2 to $77.11, while NAB, Westpac, and ANZ all lost a little less than $1. Macquarie Group fell $3 to $132.94 and fund manager Perpetual Ltd also declined by $3 to $35.84.

The biggest decline in information technology stocks was Computershare, which lost $1.25, or 1.25 per cent, to $13.77, its lowest price since September 2017. Computershare earns interest on cash it holds for companies ahead of dividend payments, but will likely earn less as interest rates fall.

Technical Indicators

Overall, the bias in prices is: Downwards.

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

By the way, prices are vulnerable to a correction towards 6,788.71.

The projected upper bound is: 6,507.70.

The projected lower bound is: 6,122.79.

The projected closing price is: 6,315.25.

Candlesticks

A black body occurred (because prices closed lower than they opened).
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.

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 22.6939. This is not an overbought or oversold reading. The last signal was a buy 0 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 20.43. 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 28 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 -116.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 8 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 7 period(s) ago.

Rex Takasugi – TD Profile

S&P/ASX 200 closed down -110.300 at 6,325.400. Volume was 62% above average (neutral) and Bollinger Bands were 263% wider than normal.

Open     High      Low     Close     Volume___
6,435.7006,435.7006,310.2006,325.4001,024,118,720
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 6,710.62 6,911.75 6,713.31
Volatility: 23 18 15
Volume: 1,085,091,456 653,778,368 643,341,120

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 5.8% 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 5 periods. Our momentum oscillator is currently indicating that .AXJO is currently in an oversold condition. The security price has set a new 14-period low while our momentum oscillator has not. This is a bullish divergence.

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