Technical Analysis: 30 January 2020

About the author:

Violeta Todorova
Author name:
By Violeta Todorova
Job title:
Senior Technical Analyst
Date posted:
30 January 2020, 9:50 AM

S&P 500 – Deterioration in momentum

The S&P 500 has pulled back sharply from its recent all-time high of 3337 breaking below its medium term up trend line marked in green in the chart below.

The medium term up trend line on the leading RSI indicator has also been violated showing that momentum is deteriorating and suggesting that a deeper pull back is likely to unfold in the coming weeks.

The weekly momentum conditions are grossly overbought also pointing to a likely weakness. Over the past two years, this is the third time the medium term up trend line on the RSI indicator has been breached. The first break occurred in October 2018 and the market lost 594 points or 20.20%. The second break was in May 2019 where the index shed 226 points or 7.65%. The reliability of such breakouts are high, therefore we could reasonably expect at least a three wave decline to unfold from the January 22, 2020 peak. We see a good probability of a re-test of the long term up trend line crossing at 3100 where initial buying interest is likely to arise.

S&P/ASX 200 (XJO) - Overbought

The rally from the December 2018 low has lost momentum over the past five months and the index has been trading sideways, fluctuating within the boundaries of a bullish ascending triangle.

A strong rally has unfolded since early January 2020, with the index confirming the triangle and posting a fresh all-time high of 7144 last week. The monthly and daily momentum indicators have reached overbought levels suggesting that the market is likely to pull back in the short term.

A re-test of the breakout point of 6875 is likely in the short term, however the decline could extend further to 6820. So far there is no deterioration in the momentum conditions and at this point we only favor a short term pull back.

US Dollar Index (DXY) – Approaching key resistance

The up trend from the February 2018 low has lost momentum over the past six months and the US Dollar Index has been trading sideways, fluctuating between 95.98 and 99.46.

The index bounced strongly in early January 2020 breaking above its secondary down trend line. The RSI indicator broke above its previous resistance, suggesting that the rally could extend a bit further in the short term.

The initial upside target is 98.30, however an extension to 99.00 could be seen. While at this point there is no reversal signal of the up trend, there is clear deterioration in the momentum conditions, which leads us to believe the index could continue to trade sideways in the coming months. That said, we are expecting strong overhead resistance in the 99.00 – 99.50 area from where a pull back is likely to unfold.

AUD/USD - Approaching key support

The down trend from the January 2018 high has lost momentum over the past four months and the AUD/USD has been trading sideways, fluctuating between 0.6670 and 0.7031.

The current short term down swing is approaching its key support of 0.6670 where initial buying interest is likely to arise.

The RSI and the MACD indicators have reached oversold territory suggesting that the currency pair is likely to bounce soon. The initial upside target is 0.6880, followed by 0.7000 in the coming month(s).

Copper – Approaching key support

The down trend from the June 2018 high has lost momentum over the past year with the price of the red metal trading sideways, fluctuating between US$2.48 and US$3.00.

The current short term down swing is approaching its key support of US$2.48 where initial buying interest is likely to arise.

The RSI and the MACD indicators have reached strongly oversold territory suggesting that the price is likely to bounce soon. The first upside price target is US$2.70, followed by US$ in the coming months.

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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