ASX200 - Why the plan hasn’t changed

After an 8% rally in early October, the ASX200 fell -3.9% last week to leave the ASX200 up just 1.92% on the month and the index down -9.1% year to date.

Charts (1)

The majority of October's gains erased as the market was confronted by a surge in the number of new coronavirus cases in Europe and the U.S. The possibility of a contested U.S. election, and the slow realisation that a pre-election U.S. fiscal stimulus deal would not be forthcoming.

Prompting the ASX200 to again respect and reject 6200ish, the top of a five month range and the reason we suggested taking profits on ASX200 longs in previous articles.

“Given the unpredictable nature of 2020 and the limited upside follow-through after trading above 6200, I have followed my suggestion from last week to increase the cash holding in my super portfolio.”

Despite the intersection of the three events above, we intend to follow the previously stated plan and to use the current dip to rebuild core longs. As the window before the U.S. election is closing I commenced doing this today and will add towards range lows, 5800/5700 area.  

The reason for this is the big picture for the stock market has not changed. COVID19 is something that markets and people will learn to live with. The viruses latest surge and subsequent lockdowns make additional stimulus in both Europe and the U.S more certain.  

On a domestic level, Victoria has continued its virus free streak today and is well placed to play its part in a re-opening of Australia’s internal borders before Christmas and the next stage of the Australian economies return to COVID19 “normal”.

Furthermore, economic data released today showed that building approvals unexpectedly surged in September. And that Australian Capital City property prices moved higher for the first time since April. Both numbers, supported by an easing in lending standards and low-interest rates.

In summary, the bias remains for the ASX200 to respect well-established ranges. We like using the current dip to add to core longs looking for a retest and ultimately a break above 6200 into year-end. We would only reconsider this view on a sustained break/close below 5700/5650.

ASX200 - Why the plan hasn’t changed

Source Tradingview. The figures stated areas of the 2nd of November 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free

More from ASX

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.