ASX 200 @ 26 OCT 2021Text me if you have any questions/comments for me.
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The last time I did an analysis on the S&P/ASX 200 was on 12 October (red arrow). Since then, the ASX 200 has broken through four resistances: - (i) counter-trendline (purple dotted line), (ii) short-term average, (iii) mid-term average, and (iv) the 7400 psychological resistance (orange line). Within 2 weeks, the ASX 200 has recovered almost 2.3%. During the same time, the S&P 500 has rebounded by almost 5%.
In last Sunday’s FB livestream, I compared the ASX 200 and the S&P 500. I’m sure quite a lot of us have wondered why the ASX 200 retraces faster but rebounds slower than its US counterpart. This is a clear sign that the ASX 200 index is weaker. I covered more ground during the livestream, so I suggest checking that out.
However, I do want to address the issue of bond buying (ie. printing money) being “financial doping”, “unsustainable”, “bubble creation”, and “impending major crash.” Economics 101 has taught us that printing of money is bad as it would greatly depreciate the country’s currency. Comparing the USD/AUD on 1 Feb 2020 till today, the USD has depreciated by around 10% during these months of heavy printing of money. At the same time, the US stock markets’ post-Covid crash recovery have almost doubled Australia’s recovery.
Combining these two things (ie. currency depreciation and market recovery) would see a net gain for the US markets. I infer that the wider benefits to the economy (ie. global financial market stabilisation, job creation, etc) outweighs the currency depreciation factor. Personally, I would take my hats off and say that the bond buying exercise has achieved its intended objectives.
At the same time, I’m also pretty sure there will still be a shock to the market once the financial teat is pulled out of investors’ mouth. When that happens, it’s likely that the ASX will retrace faster and recover slower than the S&P 500 again.
Besides that, during the livestream, I also shared about the 4 potential directions that the ASX 200 could take over the next few weeks and what each direction would mean to the market. After 2 days of trading, it’s starting to look like Direction No. 4 (ie. Blue arrow = immediate retracement) is unlikely to take place and that’s obviously good news in the short-term. An immediate retracement would have spelt trouble as it would have heightened the importance and strengthened the resistance of the 7400 psychological zone.
The US Federal Reserve’s FOMC meeting is taking place next week and we will have more clarity as to when the Feds will start tapering their bond buying exercise. With the Dow and the S&P 500 continuing their strong recovery and creating new all-time highs every day, I am expecting a strong pullback to happen soon.
It’s important to make a distinction between feelings and facts. I have been expecting a pullback since mid-October but if I had gotten out of the market early by “predicting” certain directions, I would not have made continued gains. As a Trend Follower, if the stocks or index is still in an uptrend, I will continue to stay in the game until the uptrend breaks. Being trigger happy and selling too soon will cause a lot of heartache in trading.
