Technical Analysis: 4 January 2021

About the author:

Violeta Todorova
Author name:
By Violeta Todorova
Job title:
Senior Technical Analyst
Date posted:
04 January 2021, 10:25 AM

S&P 500

During the stock market plunge In March, it has been difficult for us to envisage 2020 to end up as a good year, but ultra-low interest rates and the unprecedented government support has helped the S&P 500 finish the year with a fresh record high of 3,760 posted on the 31st of December.

The break above the September high of 3,588 has confirmed a rectangle pattern suggesting the continuation of the secondary up trend which started in March.

The potential medium-term upside target based on the breakout is 3,967. The weekly momentum readings are overbought but remain constructive at this point. The daily RSI indicator remains above its short-term support and above its medium-term up trend line, showing that the up trend is still in progress at this stage.

On the daily chart a large bearish divergence between the price and the RSI indicator has formed throughout August and December, suggesting that the rally could take a breather soon.

However, before the minor support marked with a green line in the RSI sub chart below is broken, we can not call a deeper pull back is coming, despite the overbought momentum conditions.

S&P/ASX 200

The rebound from the March 2020 low has lost momentum and the index has been trading sideways throughout June and October, fluctuating between 5,719 and 6,198. The index has gathered momentum in early November and an upward breakout occurred confirming the continuation of the secondary up trend.

The initial upside target based on the breakout of 6,677 has been reached and exceeded with the index posting a high of 6,765 on the 18th of December.

The weekly momentum conditions are overbought, but at this juncture in time there is no sign of deterioration. On the daily chart, bearish divergences between the price, the RSI and the stochastic indicators have formed throughout November and December, showing that in the short-term momentum is deteriorating and the rally could take a breather in the weeks(s) ahead.

The first level of support to monitor is the December low of 6,011, which if gets broken would signal a deeper decline to its medium-term up trend line crossing at 6,300. As long as dynamic support of 6,300 holds the secondary up trend remains intact and over the medium-term higher levels are likely to unfold, with a potential target of 7,100.

AUD/USD

The AUD/USD has been trading in a primary down trend since July 2011 which appears to have reversed direction. The weekly RSI indicator has entered its bull market range (see chart below highlighted in green), while the monthly RSI broke above its long-term resistance, showing that momentum is improving.

The weekly and daily momentum readings have reached overbought territory suggesting that the rally from the March 2020 low could take a breather in the short-term. We see a potential of a short lived pull-back before the secondary up trend resumes its surge.

Our previous upside target of 0.76 has now been reached and given the improvement in the momentum conditions and in the price structure we lift it to 0.81, which is likely to be reached over the medium-term.

Gold

Gold has been trading in a correction mode since August 2020 which is still technically intact. The weekly RSI indicator remains firmly in its bull market range suggesting that the decline is likely to be a pull back within the overall primary up trend.

At this juncture in time a decisive break above the medium-term down trend line crossing at US$1,900 is required to signal that the correction is complete and trigger higher prices over the long-term. The first potential upside price target is US$2,000 followed by US$2,200 over the long-term.

Iron Ore

In our update on the 26th of June 2020 we discussed the bullish price structure on the chart and the likelihood of higher prices unfolding over the medium-term. A strong rally has ensued over the past six months and our latest upside price target of US$160.00 has now been reached and exceeded.

The weekly RSI and stochastic indicators have reached overbought levels suggesting that the commodity could experience a deeper pull back. The current up swing has rebounded close to a band of resistance between US$181.00 and US$191.80 where strong selling pressure is likely to arise.

Given the proximity to key resistance and the overbought weekly momentum readings, we are of the view that the near-term upside from here is likely to be limited.

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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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