KEY EQUITIES CBA BHP WPL
The Australian equities market is considered to be a diverse mix of Commoditiy based equities with other key components made up of financials and retail and discretionary.
The underlying Index is heavily weighted with financials with CBA by weighting, having the largest influence on the Index.
Behind CBA are the other banks ANZ, WBC and NAB, Commodities run a close second in index weighting.
One of the challeneges in looking at the index for general guideline of bullishness or bearishness is this skew of weighting. If the banks have a good day the Index will reflect this immediately with a higher points value. The challenge is that at the same time Commodities equities may be trading flat. During 2018 there have been bullish rallies on commodities while the the banking – financials remain melancholic being flat and unresponsive. Currently the Australian 200 CFD contract is showing strong bullish divergence between the Relative strength and the underlying price movement. As the market recently made a new low the RSI has made a higher low.
The key level for the RSI is to move above the “42” value to complete the divergence signal.
Whats more important is this bullish RSI signal is showing across multiple assets lets take a look.
Commonwealth bank the largest contributor to the Index value also displays bullish divergence with the Relative strength Indicator. In this case the completion of a buy signal also requires the RSI move over the 42 level. The daily chart shows the gap open today, a good sign of further gains.
Within the Australian Index several commodity based companies have strong exposure to Oil, BHP, Woodside petroleum and Oil Search along with several smaller players including Senex energy and Beach petroleum. Firstly taking a look at the underlying Oil contract, West Texas remains in a Primary UP trend. With a recent retest of the trend line, price is consolidating between $67.00 - $68.00 leaving the OPEC designated price target well behind.
Oil Search has followed a similar path to the underlying commodity price and currently tests the short term trend line. The resistance level of $7.80 extends back into 2017 and currently has the potential to provide price support. Relative strength (RSI) has moved below the key “50” level but has flattened out suggesting slowing negative price momentum.
BHP a beneficiary of improving Iron ore prices and the underlying Oil price, with 50% of revenue coming from Oil should be assisted The daily chart shows a key level of support recently tested with a price rally from support. The Relative strength Indicator is turning higher indicating increasing positive price momentum.
In summary, during the recent sell down of the markets globally, markets currently remain at an inflection point, with some individual key support levels being tested and bearish momentum shifting to bullish price momentum. In the long run the global equity sell-off may not be complete, but in the short term support is being found at some significant inflection points in the charts.
