The ASX200 had its second worst close since 2013 yesterday finishing at just 4928.59.
There’s been much talk of lower prices as the market fell and it’s easy to be a bear when everything is falling, but it’s more difficult to do as John Templeton, one of the globe’s greatest ever investors suggested, and “buy when others are despondently selling and to sell when others are avidly buying.”
That makes this morning’s call by Chris Weston, IG’s chief market strategist, that now is the time to buy the ASX all the more gutsy.
Weston’s call on Twitter pre-dated the turnaround in US stocks, which drove the December SPI200 to finish down just 1 point at 4920.
In his note to clients, Weston said “the ASX is down 5 days in a row, it has closed down 6 consecutive days 3 times since December… but never a 7th… The risks from this perspective is that we get a bounce either today or tomorrow.”
The overwhelming bearishness he saw in the internal breakup of the ASX is a big part of his call.
If we look at the market internals on the ASX 200 we can see the level of companies above the 20-day MA has hit 14%, but when the cash market opens at 10am (around 4907) this percentage should push nicely into the ‘buy zone’, and as you can see this area has marked low points over the last five years.
The level of companies making 4 week lows is also approaching 40%; again another strong contrarian indicator. The RSI on the index is pushing into the mid 20’s , while 4900 is closer to 3 standard deviations from the 20-day moving average…the prospect of mean reversion is high.
He’s already picked up a 13 point futures rally since he wrote that. Let’s see how the rest of the day, and week, pans out for Weston’s call.
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