Technicals | Jun 20 2023
By Michael Gable
We continue to remain positive on the way share markets are trading here. The US markets have not only hit our targets, but exceeded them. They are likely to consolidate here for a few weeks.
However, there is still a lot of bearishness out there, and markets have headed higher all year now despite everything being thrown at them. This means that any dips are likely to see a bit of buying from nervous bears that are increasingly getting frustrated by the forward-looking stock market. So, any pullbacks are likely to be shallow.
In the meantime, the Australian market is finally breaking out of the bull-flag that we highlighted two weeks ago. This is, of course, being helped by a resurgence in the big miners. We noted a few weeks ago that the miners would help lead the market higher because sentiment was at extremely bearish levels.
This reminded us of November 2022 where we saw the start of a big rally in iron ore stocks. The last interesting point we will highlight is that New Zealand has now "slipped into recession". It has had slightly negative quarters all the way back in December and March. We are now almost into July.
It is little wonder that since this declaration last Thursday that the NZ share market hasn't really done anything. That is, it hasn't fallen off a cliff. Let’s use this as a lesson for all the doomsayers that a recession is on the way. If we get a recession, it will have already happened by the time we find out.
Those expecting a recession which will lead to a share market crash are waiting for some Goldilocks scenario to buy all of their favourite stocks much cheaper. We can't see it happening.
The low is in.
The most likely scenario is that more and more bears realise that the market isn't going to collapse and we see more and more buying of the dip. Just like in the second half of 2020 when everyone realised that the market wasn't going to dip again and they had to buy in, causing the market to melt higher.
This is why we believe the S&P/ASX 200 Index could see an "8" in front of it within a year.
In today's report, we have charting analysis on the S&P/ASX 200 Index (XJO).
We made the following charting comment on 6 June:
"The index has formed a bull-flag after peaking in mid-April. It may hug the underneath of the upper blue line for a couple of days but the most likely move after that is an upside break. That is, a daily close up over about 7250 would signify the start of the next run higher. That should lead to a retest of the 7500 – 7600 area.
"A downside break under 7100, however, would have us targeting levels back near 6950."
It is interesting to see that the index needed more time to form the bull flag, but it is now clearly breaking out. This should therefore be the start of a rally that sees the XJO trade up towards our target area of 7500 – 7600.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Michael Gable is managing Director of Fairmont Equities (www.fairmontequities.com)
Fairmont Equities is a share advisory firm assisting Private Clients with the professional management of their share portfolio. We are based in the Sydney CBD but provide services to private clients across Australia. We believe that the concepts of fundamental analysis and technical analysis of stocks are not mutually exclusive. Regardless of whether you are a trader or long term investor, combining both methods is crucial to success. As a result, the unique analysis of Fairmont Equities is featured regularly in the media such as Sky News Business, CNBC, The Australian Financial Review, and the ASX newsletter. Contact us for a free trial of our research and information on our portfolio management services.
Michael is RG146 Accredited and holds the following formal qualifications:
• Bachelor of Engineering, Hons. (University of Sydney)
• Bachelor of Commerce (University of Sydney)
• Diploma of Mortgage Lending (Finsia)
• Diploma of Financial Services [Financial Planning] (Finsia)
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2
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Disclaimer
Fairmont Equities Australia (ACN 615 592 802) is a holder of an Australian Financial Services License (No. 494022). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
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