S&P/ASX 200 - A Rising Tide Bound For 8,000 Mark?

Summary

• The S&P/ASX 200 index is showing an upside momentum with the index posting a gain of ~ 7.70 per cent in a short span.
• The market is adopting a bullish stance.
• S&P/ASX 200 now seems to be changing the wind with many technical indicators pointing towards early signs of a trend reversal.
• However, while the bulls participation is increasing, the opposite bearish force is also unfolding, leading to a tug-of-war between the two.

The ASX market seems to be adopting a bullish stance with the S&P/ASX 200 index surging from the recent low of 5,719.80 (intraday low on 15 June 2020) to the level of 6,160.60 (intraday high on 21 July 2020) to mark a price gain of ~ 7.70 per cent in a relatively shorter span.

Moreover, the market volume and value are now sloping upwards, reflecting on higher participation from investors.

30-day Rolling Trade Volumes (Source:ASX)

While the ASX market is witnessing a slight increase in the public participation, the benchmark equity index, i.e., S&P/ASX 200 now seems to be changing the wind with many technical indicators pointing towards early signs of a trend reversal.

However, while the bulls participation has increased the opposite bearish force is also unfolding, leading to a tug-of-war between the two forces.

S&P/ASX 200 On Charts (AXJO)

S&P/ASX 200 Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On following the daily chart, it could be seen, that historically the pair of short-term exponential moving averages have traded above the pair of long-term exponential moving averages, suggesting that the primary trend remained on the upside until the recent fall that the market witnessed on account of the fear of economic meltdown due to the COVID-19 outbreak, leading to the pair of short-term exponential moving averages below the pair of long-term exponential moving averages.

• However, post a drastic fall, the recent surge in S&P/ASX 200 is again showing a bullish setup with the pair of short-term exponential moving averages again moving above the pair of long-term exponential moving averages., reflecting that bullish sentiments are finally emerging back.
• Moreover, the 14-day Relative Strength Index is also supporting the bullish setup with the value of the index finally moving above the mean value while remaining well below the overbought zone.

S&P/ASX 200 Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On closely follow the recent shift of the pair of short-term exponential moving averages above the pair of long-term exponential moving averages, it could be seen that both pairs are currently moving close, reflecting on the existing tug-of-war between bulls and bears.

However, as both pairs are close to each other, it could be very early to confirm a change in trend, and investors should monitor the development ahead to reckon the market direction.

• Additionally, while the recent surge is well supported by a rise in volume, as reflected by the upward sloping On Balance Volume (or OBV), the 12,24,9 MACD indicator is showing a negative signal, which coupled with a flattening OBV reflect that the emerging bullish sentiments could face a tough competition ahead.

S&P/ASX 200 Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

The indication of a tough competition lying in front of bulls could be further confirmed with signals from the Ichimoku study.

• The conversion line (dark blue), which denotes the mean value of 9-day high and low is finally slipping below the base line (sky blue), which denotes the mean value of 26-day high and low, suggesting that the short-term sentiments are again turning bearish in nature.
• However, with the index trading above Span A (or the mean value of the conversion line and the base line) it could be assessed that bulls are now participating in the market.
• Additionally, Span A is also trading above Span B, which denotes the mean value of 52-day high and low, reflecting that at the present moment, bulls are dominating the front.
• The sky blue cloud zone should act as immediate support for the index, and the ability of the index or bulls to keep the index value above the sky blue cloud could attract further participation from bulls or could seed bullish sentiments while failure to do so could lead to contrary effect.
• Furthermore, while the conversion line is moving towards the base line from above, the 14-day RSI is showing a slight divergence with the RSI making new low while prices are not slipping below the recent low, which as per the theory of technical indicators is a bearish indication.

S&P/ASX 200 Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On further applying the volatility indicator along with some other longer-term exponential moving averages, it could be seen that the index is revising the mean of the 20-day simple Bollinger band, which itself is overlapping with the 200-day exponential moving average and should act as immediate & decisive resistance for the index.

• Furthermore, the index has just moved above the 50-day exponential moving average after testing the -2 Standard Deviation (or SD) of the 20-day simple Bollinger band; and, as the -2 SD and 50-day EMA are overlapping, the same level should act as immediate support for the index.
• Breakout in any direction along with the ability of the index to sustain in either direction would dictate the future movement of the index.

On further defining the support counter, it could be seen that the index is currently testing the 2/3 fraction of the Fibonacci fan, projected by connecting the recent low to the recent high.

• The 2/3 fraction should act as immediate support, followed by the decisive 3/3 fraction.
• If the index sustains the current level and breaches the present resistance, it could reach the presented Fibonacci projections, projected by connecting the recent wave points, marked as one, two, and three.

Fibonacci Projections

Note: Fibonacci Projections are only valid till the index does not slip below point 2 ~ (5,716)