Morning Wrap: ASX 200 to bounce, US small caps outperform, oil retreats from US$95/barrel

The ASX 200 has had a habit over the last few days of falling in early trade then clawing its way out of the doldrums throughout the session. Today, futures are opening higher. So will the reverse occur? In overseas moves, oil prices slid slightly overnight, leading to rallies in US equity and bond markets. There was no clear reason for the slide in oil prices, but markets are keeping one very close eye on them. Plus, we've got your charts of the week.

Let's dive in.

(Source: TradingView)

MARKETS

• Stock selloff could deepen due to short gamma, CTA selling (Bloomberg)

• JPMorgan's Kolanovic sticks to downbeat view, citing increased equity volatility (Bloomberg)

• Global market cap drops under $100T on China jitters, rising rates and concerns over sales at luxury brands (Nikkei)

• Japan's 10-year bond yield hits decade high on US yield surge (Reuters)

STOCKS

• Apple iPhone Pro users complain about overheating issues (Forbes)

• China Evergrande says founder Hui Ka-yan under ‘mandatory measures’ for alleged crimes, amid stock trading halt in Hong Kong (SCMP)

• Micron slides after predicting steeper loss than expected (Bloomberg)

• Meta launching AI-driven persona chatbots to drive engagement on its platforms (FT)

• Jefferies revenue misses estimates on investment banking drag (Reuters)

• Exxon barred from trucking oil from California offshore platform (Bloomberg)

ECONOMY

• UAW plans to strike additional facilities on Friday absent serious progress in negotiations (Reuters)

• White House says economy faces headwinds from possible shutdown, restart of student debt repayments, higher rates and UAW strike (Reuters)

• Australia retail sales missed estimates as higher interest rates and inflation weigh on household demand (Bloomberg)

• NZ business confidence turns positive in Sept, inflation concerns linger (Reuters)

Charts of the Week

This segment of the Morning Wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations and for illustrative and educational purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200: Finally

Finally, it looks like we’ll get some tradable action on the ASX 200. With the index testing (and so far respecting) the 7000 level, something useful might eventuate. Ideally, it would be a strong bounce, like we saw the last time 7K was tested back in May. It’s too early to tell whether we’ll get such a bounce or the index will crash lower and potentially retest the March lows. One for the watchlist.

Question from a reader

Given the index is more bearish than bullish at the moment, there aren’t a great deal of signals that are being thrown up by my technical scan.

On that note, a reader emailed last week and asked if I could outline the parameters of my technical scan. I’m more than happy to oblige.

The following notes are from a presentation I put together on my scan some time ago. The name of the scan is 3MA, as the basis of it is 3 Exponential Moving Averages. The scan was taught to me by my mentor, Stuart McPhee, author of the book Trading in a Nutshell (now in its fourth edition)

• Trend alignment is the key

• The strategy will identify short- to medium-term timeframe opportunities (i.e. day/weeks to weeks/months)

• The template uses 3 EMA’s – exponential moving averages – which need to be in a certain configuration for a stock to pass the ‘test’

That configuration is as follows:

• The shorter-term EMAs are crossed higher; the 8-period EMA (red) is crossed above the 21-period EMA (blue)

• Both the shorter-term EMAs are above the longer-term, 125-period EMA filter (green), which is also pointing higher

• The price action sits above all of the EMAs

Example of what 3MA looks like:

It is worth noting that whilst 3MA is the basis for my technical scans and a stock has to be in the right configuration to “pass the test” and make it onto the list, the technical analysis doesn’t stop there.

I also like to look at other key levels like: support/resistance, round numbers, gaps, continuation patterns; wedges, triangles, volume, RSI.

I would go onto say that there are many ways to look at stocks and there are many ways to analyse stocks. This is only one of them, and I would encourage everyone to develop their own templates/strategies/ideas for analysing stocks and identifying opportunities.

Karoon Energy (KAR) – The elements come together

Having just showed you the theory, I’ve picked a chart above in Karoon where the elements come together.

Namely, they are the following:

• 3MA in the right configuration

• Uptrend support

• Breakout and retest of the $2.40 region – which was a swing high from January and April

• Breakaway gap on the latest candle, clearing the consolidation zone between $2.40-$2.60 a punching into clean air.

• Rising average volume through the consolidation zone and break higher

• RSI not overcooked

Those are all of the bullish elements I am seeing on the KAR chart and, as alluded to above, I never rely on one piece of evidence. I’m always looking for the weight of evidence. And even then, no trade is guaranteed.

A trade can look great at the point of entry and not work out. I have found over my trading career, however, that if you use the weight of evidence principle and you apply your method consistently, the results will follow.

ASX corporate actions occurring today:

• Trading ex-div: Several ETFs trading ex-div today. See a full list here

• Dividends paid: There are 22 companies paying out dividends today. See a full list here

• Listing: None

Economic calendar (AEST):

• 11:30 am: Australia Housing Credit

• 7:00 pm: Eurozone Inflation Rate

• 10:30 pm: US Core Personal Consumption Expenditure Index

• 10:30 pm: US Personal Spending