Technical Analysis: 28 January 2021

About the author:

Violeta Todorova
Author name:
By Violeta Todorova
Job title:
Senior Technical Analyst
Date posted:
28 January 2021, 10:00 AM

S&P 500 – Deterioration in momentum

The S&P 500 has been trading in a strong secondary up trend since March 2020 which is still technically intact.

Overnight the index dropped 98 points or 2.57% which is the fourth one-day aggressive decline since last March.

The VIX indicator spiked up and reached a high of 37.21. The key resistance for the VIX sits at 41.16 and if the fear index breaks above this level in the next few trading sessions, we are likely to see a deeper pull back in the S&P 500.

On the daily price chart, the last minor support of 3,749 was breached overnight and we are likely to see an extension of the decline to its medium-term up trend line crossing at 3,670.

The support of the leading RSI indicator is now broken and points to further weakness in the short-term. A break below 3,670 has a fair probability and could trigger an extension of the decline to 3,550.

The weekly momentum indicators are overbought too and strengthen our view the index is vulnerable to a deeper pull back in the short-term.

S&P/ASX 200 – Deterioration in momentum

The S&P/ASX 200 index has been trading in a secondary up trend since March 2020 which is still technically intact.

A large bearish divergence between the price and the RSI indicator has formed throughout November 2020 and January 2021 showing that momentum is deteriorating.

The stochastic indicator has turned lower from overbought territory yesterday, suggesting that the index is likely to pull back in the short-term.

The potential downside target is in the range between 6,490 and 6,585, which is an important cluster of static and dynamic support and is the key area to be monitored in the short-term.

The weekly momentum indicators are overbought too, also pointing to a likely pull back in the week(s) ahead. 

Wesfarmers - Overbought

WES has been trading in a strong up trend since March 2020 which is still technically intact.

We have been having a positive view on the stock for some time now with yesterday’s price action posting a fresh all-time high of $55.43, greatly exceeding our price target of $49.00.

The daily RSI and the stochastic indicators have reached overbought territory suggesting that the stock is likely to pull back in the short-term.

The initial downside price target is $52.20, however this level could be exceeded.

As long as the key dynamic support of $51.00 holds, our long-term view on the stock continues to be positive and at this point we only favour a short-term pull back. 

Pro Medicus - Overbought

PME has been trading in a strong up trend channel since March 2020 which is still technically intact.

The current short-term up swing has rebounded to its channel line crossing at $45.00 where selling pressure is likely to arise.

The RSI, the MACD and the stochastic indicators have reached overbought levels and point to a likely pull back in the short-term.

Although, we continue to like the stock over the long-term, given the proximity to key dynamic resistance and the overbought daily and weekly momentum conditions, we are of the view that the near-term upside from here is likely to be limited and the stock is vulnerable to a pull back in the week(s) ahead.

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Disclaimer: 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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