Technical analysis: 3 August 2020

About the author:

Violeta Todorova
Author name:
By Violeta Todorova
Job title:
Senior Technical Analyst
Date posted:
03 August 2020, 4:26 PM

S&P/ASX 50 (XFL) – Taking a breather

The S&P/ASX 50 has been trading in a secondary up trend since the 23rd of March 2020 which is still technically intact.

The rally from the March low has lost momentum over the past two months and the index has been trading sideways, fluctuating between 5,618 and 6,096, showing indecision among market participants.

In the short term, the momentum indicators are producing conflicting signals, with the RSI breaching its support which is a bearish development, while the stochastic is turning up from oversold territory which is a bullish sign.

When our key momentum indicators are in conflict it emphasizes the uncertainty in the short term. Investors should focus on the two key levels: 5,618 and 6,096 as a break above or below these levels is the line in the sand and would determine the continuation or the termination of the secondary up trend.

A break above resistance of 6,096 would signal an extension of the secondary up trend to 6,400, while a break below 5,618 would signal a deeper pull back to 5,200.

The weekly RSI indicator has rebounded to 50% since it reached oversold levels in March and it remains in its bear market range so far.

Unless the weekly RSI breaks above 60% we can not declare a primary bull trend and we should treat the current secondary up trend with caution.

AMP Ltd (AMP) – Bearish breakout

The rally from the March 2020 low has lost momentum over the past two months and the price has been trading sideways, fluctuating within the boundaries of an imperfect bearish descending triangle.

Friday’s price action broke below minor support of $1.67 and has confirmed the pattern.

The initial downside price target based on the breakout is $1.27, however further weakness to $1.15 cannot be ruled out.

The weekly momentum conditions remain poor, while the daily readings are in a sideways market range.

This suggests that at this point there is no sign the primary down trend is reversing course and at best the stock is likely to continue to trade sideways in the coming months.

Australian Foundation (AFI) – Short term weakness

The rally from the March 2020 low has lost momentum over the past two months and the price has been trading sideways, fluctuating between $6.00 and $6.43.

The current short term up swing has rebounded to its previous resistance of $6.43 where initial selling pressure is likely to arise.

The RSI and the stochastic indicators have reached overbought territory suggesting that the price is likely to pull back in the short term. The potential downside price target is $6.15.

The daily RSI indicator remains constructive at this point and we don’t see a reversal of the secondary up trend.

The weekly RSI readings have not entered a bull market range yet, therefore at this juncture in time we can declare a primary bull trend has started.

Super Retail Group (SUL) – Bullish breakout

The rally from the March 2020 low has lost momentum over the past two months and the price has been trading sideways, fluctuating between $7.58 and $8.85.

Friday’s price action broke above resistance of $8.85 confirming a rectangle continuation pattern.

The initial upside price target based on the breakout is $10.40 where selling pressure may arise. The daily RSI indicator is in its bull market range and completed a similar breakout, adding further confidence the price is likely to trade higher in the coming month(s).

In the short term, the price may trade slightly lower as the stochastic indicator reached overbought territory.

We see such potential short-term share price weakness as an opportunity to buy the stock.

More information

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Disclaimer: Analyst may own shares. 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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