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Australia: S&P/ASX 200 (.AXJO) trading close to an 11-year high as investors are feeling more optimistic about the economy following the federal election

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Australia: S&P/ASX 200 (.AXJO) trading close to an 11-year high as investors are feeling more optimistic about the economy following the federal election

The S&P/ASX 200 (INDEXASX: XJO) index is trading close to an 11-year high as investors are feeling more optimistic about the economy following the federal election and growing expectations of interest rate cuts by the Reserve Bank of Australia.

You might think lower rates and higher risk appetite would drive most investors away from holding cash. You’re probably right, but I’ve gone overweight on cash as I’ve been actively selling shares into the recent rally.

It might sound like a controversial call, but I think now is the time to be collecting cash so that investors can better capitalise on select opportunities in the next market correction.

Trying to time the market is always a mug’s game and it’s rare to find me going overweight on cash, let alone by such a wide margin, but my decision to go 35% cash (that’s a lot for me) is driven by two key factors.

The sharemarket is underestimating current risks

The first is my belief that the market is under-appreciating risks, after the ASX 200 surged 14% since the start of calendar 2019. That’s roughly what I would hope the market would deliver in a full year, and we aren’t even in June yet.

The cheers from talk of aggressive rate cuts are also worrying me. I love rate cuts as much as the next ASX investor, but I will admit I feel a little disconcerted this time. It seems every time economists talk about rate cuts, they are expecting more.

It was only a few months ago we were half expecting one cut and now we have largely priced in three. JP Morgan has gone a step further to forecast four cuts, which would bring our interest rate down to just 0.5%.

Rates only go that close to zero during an emergency, and you can’t detect any sense of worry from equity investors. It seems bond market and equity market investors have very different outlooks!

The yield inversion in the US between the three-month and 10-year treasury bond has gotten worse too, and that’s historically been a good predictor of a looming recession. It’s times like these that Warren Buffett’s teachings about being fearful when others are greedy should come to mind.

Overall, the bias in prices is: Upwards.

By the way, prices are vulnerable to a correction towards 6,261.05.

The projected upper bound is: 6,507.31.

The projected lower bound is: 6,284.96.

The projected closing price is: 6,396.13.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 30 white candles and 20 black candles for a net of 10 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 29.0870. This is not an overbought or oversold reading. The last signal was a sell 3 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 52.34. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 5 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 1. This is not a topping or bottoming area. The last signal was a sell 4 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 0 period(s) ago.

Rex Takasugi – TD Profile

S&P/ASX 200 closed down -47.900 at 6,392.100. Volume was 15% above average (neutral) and Bollinger Bands were 39% wider than normal.

Open High Low Close Volume___
6,440.0006,440.0006,379.7006,392.100 719,276,672

Technical Outlook
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 6,456.88 6,295.55 6,042.62
Volatility: 14 11 14
Volume: 628,360,128 592,410,752 618,709,504

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% above its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of .AXJO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .AXJO and have had this outlook for the last 30 periods.

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