Technical update: 2 June 2017

About the author:

Violeta Todorova
Author name:
By Violeta Todorova
Job title:
Senior Technical Analyst
Date posted:
02 June 2017, 11:17 AM

S&P 500 – vulnerable to a pull back in the short term

The S&P 500 has been trading in an up trend since February 2016 which is still technically intact. Thursday's price action decisively broke above its resistance of 2405, suggesting that higher levels could unfold in the near term. Our target based on the breakout is modest at 2450 as momentum indicators are overbought on a weekly and daily basis. 

Overall, our long term view on the market remains positive at this point, however we are becoming more cautious as the index enters overbought levels, which makes it vulnerable to a pull back in the short term.

S&P/ASX 200 (XJO) – downside target reached

In our last update on May 17, 2017 we discussed the likelihood of the index breaking below support of 5790 and declining to 5680 in the short term. The expected breakout has occurred and our downside target has been reached on Tuesday. While the overbought momentum conditions have unwound to a reasonable level on the daily chart, the weekly readings are not in a buy territory yet, which means that the market is not cheap even after the current pull back. Short term, the index is likely to rebound modestly with a potential upside target of 5830. Over the medium term, we have noted deterioration in the price structure and we see a good probability the index will take a breather and trade sideways in the month(s) ahead.

Over the long term, our view on the index remains positive and we see levels towards 6000 as achievable.

Healthscope (HSO) – facing resistance at $2.30

In our last update on May 19, 2017 we discussed that the stock is under selling pressure and highlighted the negative implications in the short term if support of $2.09 gets broken. The sellers pushed the price below this level and a short term low at $1.97 is now in place. The stock rebounded strongly on Thursday from oversold territory and wee see a possibility of a rally to $2.20 - $2.25. The momentum indicators however, remain weak, and there is a good probability the stock will take some time before it turns around. Therefore, active clients may consider trimming into strength.

Nanosonics (NAN) – accumulate

In our last update on April 6, 2017 we discussed the overbought nature of the stock and the likelihood of the price declining in the short term. The expected pull back has unfolded over the past three weeks and we note that the RSI and the MACD indicators have approached oversold territory. The price has approached support of $2.65 where initial buying interest is likely to arise.

Although we would like the price to decline a bit further before we qualify it as a strong buy, given the proximity to support and oversold momentum levels, we are comfortable starting to accumulate around current price levels.

Wesfarmers (WES) – target reached

We have been advising clients to take profits around $45.00 and in our last update on 24 April, 2017 we highlighted the likelihood of the price declining in the short term. A strong pull back has unfolded over the past three weeks and our initial conservative downside price target has been exceeded as anticipated. The price is approaching a band of support between $38.62 and $39.65 where strong buying interest is likely to arise. 

While the stock is in accumulate territory at current levels, we would like to see a bit more weakness before we rate it a buy.

More information

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Disclaimer(s): Analyst may own shares in some or all of the companies mentioned.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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