Today the losses in the banking sector weighed on the broader index, yet the relative strength between the two leave the potential for ASX to outperform and move towards 6k without it. Banks weigh on ASX yet another attempt at 6k is possible
Banking has dragged the ASX200 lower by the ‘big four banks’ who stated they were looking to cut costs to maintain earnings momentum. Banks are under pressure from several angles, with the latest being the APRA measures to cool the housing market via tighter lensing standards; This negatively impacts their earning potential, meaning banks have to depend further upon cost cutting measures to retain growth.
The ASX200 had been underperforming finance since H2 2016, yet today’s heavy losses for banks suggest this trend is about to change. As the ratio of ASX200/finance has broken the bearish trendline after creating two failed attempt to break lower – today’s price action also suggests a double bottom on the ratio line. If this is correct then we can consider bullish setups on the ASX whilst turning a slightly blind eye to financials losses.
Upon initial inspection, you’d be forgiven for thinking that the recent highs on ASX are not as impressive as seen in Europe (and in percentage terms, you’d be correct). However, from a purely technical perspective, there is potential for a near-term bullish setup to develop as it attempts to retest the highs and hit the 6k mark once more.The ASX remain in a bullish channel as it hopes along the 50 eMA and respects the monthly S1.
Where the bullish trajectory of the channel fails to impress, the timely large swings with classic reversal patterns could make up for it. The channel is made up of the inner line (using close prices) and the outer channel (which uses OHLC bars), which allows for noise around the channels as the choppy price action moves higher. We are aiming to make a relatively good swing trade long despite that shallow depth of the channel as the characteristic of current price action is to develop large swings before printing a swing trade alert with candlestick patterns.
At time of writing the ASX is highly likely to finish lower for the day, yet it has also struggled to retest the bullish hammer from Friday whilst it also hovers above the 50 eMA. The hammer need not necessarily mark the actual low but it does suggest the downside momentum from the prior swing is waning, which leaves the potential for a base to build above or around the 50 eMA. Even if prices were to move lower from here, we would consider bullish setups for a long swing trade whilst above the 8788.6 low, if a classic candlestick pattern presents itself and we think we risk to reward ratio is adequate.
Matt Simpson | Senior Market Analyst
A certified technical analyst, combining macro themes, monetary policy and business cycles to generate Forex and commodity trade ideas.