The Australian Banking sector is approaching a key resistance level for the 5th time and a break out above this congested area of resistance is key for the sector. We take a closer look at the sector and the key levels to watch out for confirmation of a breakout to higher levels.
The actual name of the stocks that make up the banking sector is called the ASX 200 Financial index excluding REIT's, which means the sector is predominately made up of the large and small banks and other financial intermediaries. If you would like to have a look at my review of the REIT sector last month you can by clicking REIT sector review. I excluded the REIT sector as the REIT sector continues to struggle from rising bond yields in October and the poor performance would skew the actual performance of the banks within the financials sector.
The Financial sector has been riding on a very long term uptrend that began after the considerable fall in 2008. Since making those lows the financials have been steadily climbing higher, on the back of rising profits from Australia's insatiable appetite for Real Estate. Thankfully for the bank's Australian's continue to increase their debt levels by taking out larger mortgages to participate in the Australian market that has been recently been described a bubble market. For more information on the Australian real estate bubble you can take a look by clicking: Debt Fueled Real Estate Bubble
ASX 200 Financials Ex REIT's Sector Review
After making all time record highs in March 2015 of 8419, the sector retreated back to the long term uptrend level over the next 18 months to around the 6060 level as it formed a down trend within its longer term uptrend. (See chart below)
Since bouncing off its uptrend line in February and March this year, the sector has been moving sideways in a tight range. However with only 5 trading days left in the month of October, the Financials index looks to have broken its downtrend pattern and has continued on its longer term trend (Labelled on the chart). In addition on a monthly basis the sector looks set to break out of its 6760 resistance level as it closed on Monday 24th October at 6750 only 10 points away from resistance.
On the weekly chart below the Financials ex REIT sector is slightly different. From the chart below you can see the resistance level is a little higher than the monthly chart at 6785. You can see that several times this year the sector attempted to close above the 6785 level and failed. However you will also notice that each time it failed to close higher, the retreat lower was shallower as it formed higher lows (shown with the blue up trending line), which is a bullish signal.
I have also circled the area on a weekly chart where it broke its downtrend pattern in July and August this year, which confirmed the end of the 18 month down trend within its large uptrend cycle.
If the sector can close above its 6785 level the next level of resistance is 7070, as shown in the chart. You will also notice for the sector to reach the previous record highs set in 2015, the sector has a number of resistance levels to clear along the way.
On a daily chart taking a much closer look at the sector, you will notice the resistance level is set a little higher again at 6815 compared to the monthly and weekly charts. I have marked with circle each attempt the sector made to close above this key area of 6815.
Considering the financials ex REIT sector has failed the close higher above 6815 level on 4 attempts, this resistance level is a very critical area for the sector to break in order to move to higher levels.
On a daily chart there are a number of technical indicators that provide a bullish case for breaking its resistance level of 6815 including but not limited to:
1. The chart has been forming higher lows indicated by the blue rising sloping line.
2. The closing price on the 24th October is above the 10 and 50 day moving average.
3. The sector has broken out of its down trend on a weekly and monthly basis.
4. The closing prices in 2016 has respected the longer term uptrend line.
The Market To Confirm If The Real Estate Bubble Will Continue
Since the Financials sector comprising mostly of the banks, if the market confirms a close above the key resistance levels mentioned above, this would indicate that the market believes the Australian Real Estate Bubble will continue in the medium term.
Alternatively failure to close above resistance, and break below its long term uptrend would indicate that the market believe both the bubble is coming to an end and that real estate prices are set to fall in Australia.
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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.