Technicals - ASX200 INDEX - located in overbought territory - reason for caution

Angela Mangan

The ASX200 index previously generated a technical buy signal at 5543 on 8/12/16 and reached the nominated upside technical target located at 5725 on 3/1/17 (referred to in recent wire (VIEW LINK). At current levels the index is a technical hold. However, as a result of the rally the index is approaching the same overbought levels on a RSI / momentum basis that occurred in early 2015 and late 2013, which is reason for caution relating to the sustainability of the rally. The RSI is not a turning point indicator - it flags overbought situations, but does signal when an overbought situation will correct. A technical top formation is the requirement for a technical sell signal to be triggered and there is currently no sign of this emerging. However, as a result of the rally a significant number of stocks have progressively reached previous buy signal targets, notably the major banks, which are now rated as technical holds rather than buys. The resource sector of the market is being watched very closely potentially for a negative technical turning point.


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