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An important juncture

Lesley Beath  |  19 May 2015Text size  Decrease  Increase  |  

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To the extent that any content below constitutes advice, it is general advice (or, in New Zealand, a "class service") that has been prepared by Lesley Beath as a Morningstar authorized representative (ARN 469614) without taking into account your particular investment objectives, financial situation or needs. If necessary, you should consider the advice in light of these matters, consult with a licensed financial advisor, and consider the relevant Product Disclosure Statement (Australian products) or Investment Statement (New Zealand products) before making any decision to invest. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. The author does/does not have an interest in the securities disclosed in this report.


Overview

Various equity and commodity markets are testing some interesting support and resistance levels at the moment, so let's jump in and have a look.

In the US, the S&P 500 and the Dow Industrials are pushing at their 2015 highs. The S&P Bank index is also approaching a significant barrier. The Dow Transportation index is once again testing the support that has been highlighted on numerous occasions and the Dow Utilities is in the vicinity of its 200DMA.

The Russell 2000 is holding above support after breaking out of a multi-month trading range earlier in the year -- so is the UK FTSE.

The VIX remains at the lower limits of its recent range.

The German equity market, as measured by the DAX, is drifting towards the October 2014 uptrend, but the Commerzbank index tested that uptrend last week. Action in the latter will give guidance in the week ahead.

The Toronto Composite index is also testing its 2014 uptrend.

The US T-Bond bounced off solid support last week.

The US T-Bond/S&P 500 ratio has drifted lower over the past month or so, after testing its major downtrend in late March. At the moment, the short-term downtrend that commenced in late March is still in place, but downward momentum is beginning to slow, so we need to be on the lookout for a possible short-term reversal in the ratio.

Copper is testing its 2011 downtrend.

I could go on, but as can you can see we are at an important juncture.

China is the odd one out here, as it begins to stall after the massive rally since mid-2014.

As for the Australian market, many of the major indices are now in close proximity to their 200DMAs. Those include the All Ords, the ASX 200, the ASX 20 Leaders, the ASX Financials and the ASX Insurance index. The ASX Midcap index is testing the October 2014 uptrend.

As in the US, while some indices are testing support, others are approaching resistance. The latter include the ASX Small Ordinaries, the ASX 100 Resources and the ASX Gold index. Those support and resistance levels are evident on the charts later in the report.

So what now? I think the odds marginally favour some near-term upside, both here and in the US. But let's just monitor the action over the coming week.