March 3

Market Update for Mon 5 Mar 2018

XJO followed-through to the downside and lost 70+ points before prices found fresh buying at the round number 5900. Buying supported prices and the close off the low of the day confirms the presence of demand. The week is closing on a weak footing with prices selling off after an upthrust occurred on Tuesday. The previous uptrend channel, as well as support levels, have been broken to the downside which keeps the ‘bounce within a downtrend’ the main scenario for now. The Chart-of-the-Day shows a Daily chart of the S&P/ASX-200 (XJO) with a Fibonacci structure. We showed this structure already two weeks ago and updated the price action since then. Prices action since the break above 5800 resistance in October 2017 remains in a large trading range between 5800 and the most recent price top at 6135. Prices swivel around the key pivotal level at 5965. The most recent bounce stalled at 6090 resistance and below a downtrend line drawn across the previous price tops. We discussed the possibility of a selloff in yesterday’s post and noted that a swift recovery would trigger a buy-signal for the price index. Indeed, a recovery would confirm support at the 38.2% Fibonacci level and 5925 support and trigger on a Daily close above Thursday’s close. A close above the psychologically important round number 6000 would ease from downward pressure but only a break above 6090 resistance would clear the way for a new high in the price index. The bearish scenario has to be favoured on a break of 5925 support. This would likely lead to a re-test of the February 2018 price bottom and have the potential to end the long-term uptrend. The most recent price tops didn’t make it all the way to the supply line of the uptrend channel from the November 2016 price bottom and prices seem to struggle to lift off from its demand line. The uptrend looks tired and the technical picture remains weak. Market Conditions got downgraded to a Stage 3 early February 2018 and remain in Stage 3. A weekly close above the 6090 level is required to upgrade Market Conditions back to a Stage 1.

The NH-NL Index is negative. All Daily NH-NL indices are in bearish territory and the Weekly NH-NL index dropped back to its zero line. The recent bounce in the Daily NH-NL indices didn’t even make it all the way to a falling tops line drawn from the November 2017 peaks. The NH-NL gives a message for a lack of underlying strength but is not outright weak.

The Secondary Market Internals are negative now with the NH-NL Ratio dropping towards an oversold condition. This drop is pulling down the NH-NL Ratio moving average. This is a message for adverse markets. The Volatility Index is back at its flat moving average and remains above the levels of the previous months.

The Breadth Indicator is negative. the McClellan Oscillator dropped below its zero line and the Summation Index is falling again. The oscillator is not outright weak but gives a message for weak bulls rather than strong bears. The Summation Index is hovering just above its +600 neutral line but not making any trending move at present. This is a message for low liquidity in the market, the most important fuel to drive prices. The oscillator broke below a rising bottoms line (green line) on Wednesday and gave a message for a short-term top in prices.

The Bottom Line. Negative price action continues after an upthrust has been made in Tuesday’s session. Resistance at 6090 is holding while support levels continue to fail. A quick recovery back above the area between 5945/65 is required to keep a positive view on the bounce from the early February 2018 price bottom. A recovery back above the psychologically important round number 6000 is required to ease from downside pressure but only a recovery back above 6090 resistance would improve the otherwise negative technical picture. Market Internals are negative but not weak. At present, they give a message for weak bulls rather than strong bears. Trading Mode remains Conservative. A downgrade to Protective could be avoided by a mere 3 points.

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Posted 03/03/2018 by Notes on ASX in category Daily Market Update