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ASX 200 Retraces over 50% of March Crash, Back in Bullish Territory

  • December 06, 2020 12:33 AM AEDT
  • Hina Chowdhary
    Director, Equities Research Hina Chowdhary
    1394 Posts

    Hina Chowdhary is the Director, Equity Research at Kalkine and has an extensive experience of about 15 years in the area of Research, which includes 5+ years in Equities Research particularly.She has earned a Master of Science degree from the renowne...

ASX 200 Retraces over 50% of March Crash, Back in Bullish Territory

ASX 200 – the benchmark index is showing a sign of a trend change after demonstrating a steep recovery since late March 2020 till now with prices soaring from 4,402.50 (intraday low on 23 March 2020) to the present high of 6,713.30 (as on 25 November 2020).

Gold MTF non-AMP

The steep recovery marks a price appreciation of ~ 52.38 per cent. Apart from that, on the technical front, the benchmark index is showing some strong sign of a trend reversal, reflecting that the growth is once again back.


ASX 200 Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

More Than 50 Per Cent Recovery in ASX 200

On following the daily chart of ASX 200 index, it could be seen that the index has now retracted more than 78.6 per cent of the crash witnessed at the initial stages of COVID-19 outbreak. Academically, many technicians suggest that a retracement from 50 to 61.8 per cent to the primary trend might be a trend reversal.

The early indications provided by many technical indicators suggest that the index might well be on its way for a trend reversal or it might have even unfolded.

ASX 200 Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

Technical Indicators Confirm Trend Reversal

On further following a set of technical indicators, i.e., moving averages, it could be noticed that a trend reversal has unfolded for the benchmark index.

At present, ASX 200 is trading above the 200-day exponential moving average, suggesting that the major trend is now an uptrend. Also, the index is trading above the 50-day exponential moving average as well, reflecting that the short-term trend is also an uptrend or rather say bullish in nature.

Furthermore, the pair of 50- and 200-day EMA is showing a positive crossover (a.k.a. golden crossover) with 50-day EMA crossing the 200-day EMA from below, establishing a major uptrend. The current establishment of the primary trend as an uptrend would be negated once the index retraces more than 50 per cent of the recovery from 4,402.50 to 6,713.30.

On observing the trend following directional indicators, it could be seen that Plus DI is currently trading above the Minus DI, reflecting that the majority of close over the last 14-day Average True Range (ATR) is on the positive side.

Moreover, the Average Directional Index (ADX) is also sloping up in tandem with the price recovery and the directional index, suggesting that the market is trending as well.

Also, the volume support indicators are also in favour of the current rally, the On Balance Volume (OBV) is moving in tandem with the price action.

Therefore, the evidence and readings gathered from technical indicators suggest that an uptrend has already been underway in ASX 200.

What Next?

ASX 200 Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On further studying the recent price action, it could be seen that the index gave a volatility breakout in early November 2020, and since then, the index has been closely trading near to the +2 Standard Deviation of the 20-day simple Bollinger Band®, reflecting strong bullish momentum.

However, after staying bullish for a while, the index now seems to be moving forward to revise the mean value of the Bollinger Band®, which could now act as the immediate support for the index, followed by the -2 Standard Deviation of the band.

The recent top of 6,713.30 could act as an immediate and short-term resistance for the price, followed by the major resistance at ~ 7,200 mark (or the 100.0 per cent retracement level/ the previous top).

 

 

 

 

 

 

 


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