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The views expressed in this report are those of John Gajewski and may differ from Morningstar's views.

Lesley Beath is on leave.

Reviewed this week

• Overview
  ASX200 is vulnerable to the downside. More...
• Santos (STO)
  Downside risks are increasing. More...
• Newcrest Mining (NCM)
  Attempts to get above the 2008 high weakening. More...
• Orica Limited (ORI)
  Rate rise not strong enough to dispel downside threats. More...
• Cabcharge Australia (CAB)
  Making a major low. More...
• SP Ausnet (SPN)
  A sleeper awakens. More...
• GWA Group (GWA)
  Does not like levels below $2.20. More...

Please note: before making an investment decision, Morningstar recommends you read the fundamental research available on these stocks.

Disclaimer: To the extent that any content in this report constitutes advice, it is general advice that has been prepared by John Gajewski without taking into account the particular investment objectives, financial situation and particular needs of any individual investors. If necessary, you should consult with a licensed investment adviser or dealer in securities such as a stockbroker before making an investment decision. 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.

Overview

Two important events occurred last week that take the ASX200 a step closer to a resolution of its range - a bearish key week reversal and the VIX rising off its range lows.

The first gives the market a bearish tone while the second warns that volatility may soon increase leading to a substantial move.

The ASX200 action is out of line with the US Indices which managed to push to new highs for the rally. The drop may have something to do with the CRB Index that eased last week as it respected the resistance of the swing low of just a month ago. The Shanghai Index was one of the few world share market indices to ease as well, reflecting the effect of commodity prices.

It is the bearish Key Week Reversal that is of greatest concern for the ASX200 as it is a precursor to a new decline. This signal needs to be moderated by the position of the market.

On a broader level the ranging of the past couple of months is holding below the ranging witnessed in July where the base was at 4,451. The 200DMA is trending downwards and is currently at 4,544. While prices remain below these levels the ASX200 remains vulnerable to another decline.

Immediately, the market has been in a range of 4,355 on the high side and 3,840 on the low side. Last week's high was a lower high, so the value of last week's signals may only be to trigger another swing within this range.

Although the Index has risen above the 56DMA, that moving average is still trending downwards and cannot be relied on for direction just yet. A firm drop below it (4,120) will keep the index on a downward path. If prices manage to hold at this moving average, and the moving average then turns upwards, then the downside risk will be reduced.

It will take a break of 3,840, a drop out of the current range, to confirm that a new decline is unfolding.

In support of the bearish view is the Relative Strength Index that has risen to only its neutral level before easing down in line with last week's drop. Also, the Bollinger Bands that signalled a new downward trend with the drop to the August low, witnessed a return to its moving average, suggesting that the decline is still intact.

(click image to enlarge)