Well it looks like panic is starting to set in again - but is really time to panic? Well in my opinion its never time to panic, but it may pay to start being cautious.
To be clear, this post is not a recommendation to buy or sell anything, its simply my analysis and opinion.
At the time of writing (The evening of 20 September 21 - AEST) the predominate reason for the ASX being spooked today (around 2% drop) seems to be indicated as the either the Evergrande situation or iron ore dropping (perhaps both as I'm sure there is a nexus). Although there is some thought that it could be the movement on the US index futures (although maybe they're being influenced by the same thing...). As for a trend follower and technical analyst such myself the reason is pretty much moot, that being said, it does pay to pay attention to some real-world signals.
I have observed that often after a string of red days (or a single big red day), you often start seeing lots of bearish sentiment appear on various financial media and social media pages. It seems that as soon as there is a bit of a drop, the bears come out and start spruiking the bear case. These posts/articles tend to suck people in and start to set up a bit of a negative mindset.
So ignoring the big news, let us look at the charts and see what they are showing. Let us start with the ASX 200 (XJO).
From the above chart, it looks fairly apparent that a downtrend has started forming, starting from the most recent high of 13 August. The chart shows that following the open on 14 August, the market failed to make a new high and started trending downwards for the following week.
Fairly solid resistance was then found at around 7460 on 19 August, with several retests until around 9 September (between these dates, the market seemed to be trading in a fairly tight 60 point range). On 9 September, the support level was broken. For the following week (until 17 September), the previous support level provided resistance, with another support offered around 7360 (the close on 9 September).
Today's movements seem to pretty clearly break through that resistance, but we'll need to see what tomorrow brings.
Other things that I note on the chart are the 20 and 50 days MAs, the 20 days MA will likely cross the 50 day (a bearish indicator in my view).
Overall, the chart doesn't look particularly good for long trades, and I'm certainly reducing my capital at risk. I may start taking a few limited short trades at this point, but I won't flip to a full bearish position unless I see a confirmed break of the 200 day MA (currently around the 7000 mark).
I think as I said up front, it would be prudent to be cautious at this point and I'll be refraining from taking full-size positions.
Anyway, I hope someone found this useful.
Nick the Trader Guy
20 September 21