Australia 200: Desperately Trying To Return To Above 5400

Australia 200 for Monday, October 20, 2014

Since the beginning of September the Australia 200 Index has declined strongly from its multi-year high after running into resistance around 5650 back to enter its previously established trading range between 5400 and 5500, before falling further below 5200 and to an eight month low around 5120 a couple of weeks ago.  It enjoyed support from the 5200 level and is still fighting hard to rally higher above 5200 after recently threatening to break through this level for the first time since February 2014. Earlier last week it received solid support from the 5100 level which saw it rally well in the last few days to close out last week.  Several weeks ago the 5400 level was called upon to offer support as the index desperately tried to stay in touch with its range, however it fell through there before rallying strongly back up to 5400.  Up until recently, the 5400 level had done well and propped up price to keep it within the range.

In its recent fall at the beginning of August it moved down to a three week low around 5375, however it received solid support at the 5400 level which has allowed to consolidate and rally higher. The solid move higher throughout July saw it move strongly up through both the 5500 and 5550 levels to reach a then six year high around 5620. In recent weeks it has discovered a new key level to deal with after running into a short term resistance level at 5550, which earlier last week provided some solid support. It reversed strongly several weeks ago bringing it back down to almost touch the 5400 level before rallying back higher again. At the beginning of June the Australian 200 Index fell and broke back down through the key 5500 level towards a four week low around 5400 before consolidating and resting on support there for an extended period.

The 5400 and 5500 levels firmly established themselves as significant and now that we have seen a substantial break to one side, momentum has kicked in and seen the index fall strongly lower. Back at the end of May, it moved back and forth between the two key levels of 5500 and 5550 before the recent fall. Over the last couple of months the Australia 200 Index has formed an amazing attraction to the key 5500 level as it spent a considerable amount of time trading around it. A couple of weeks ago, the index fell away heavily back down to support around 5400 before returning to the key 5500 level just as quickly, as if gravity had pulled it back. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

The background to economists commentary this in Australia week was a sobering speech from the RBA.  RBA assistant governor Guy Debelle referred repeatedly to a potential sell-off in financial markets once the current period of unusually low volatility inevitably ended, and to the likelihood that it could be violent.  Later that night, the US share market turned downward, only to bottom out more than four per cent lower a little over 24 hours later.  More than one economist referred to the market action as “carnage” – they included St George Bank’s Besa Deda and NAB’s Spiros Papadopoulos.  Merrill Lynch economists Saul Eslake and Alex Joiner zeroed in on Dr Debelle’s remark that a lower exchange rate would help to achieve balanced growth in the Australian economy.  “This passage again makes it abundantly clear that the RBA wants to see the $A lower still and is focused more on its supporting of economic growth than being concerned about any inflationary impact it may have,” they said.  September quarter inflation figures are due on Wednesday.  Commonwealth Bank’s Michael Blythe thinks economists might be surprised by the strength of the rise in the CPI.

Australia 200 Daily Chart

Australia 200 October 19 at 23:00 GMT   5307   H: 5307   L: 5307

Australia 200 Technical

During the hours of the Asian trading session on Monday, the Australia 200 Index is going to try to rally higher and remain above the recent support level at 5200, after recently breaking through this level for the first time since February 2014. For most of this year the Australia 200 Index has moved well from the lower support level at 5000 up to the multi-year highs above 5500 in the last month or so.

Further levels in both directions:

• Below: 5100.

• Above: 5500 and 5650.

Economic Releases

• 21:45 (Sun) NZ External Migration (sa) (Sep)
• 05:00 JP Leading indicator (Final) (Aug)
• 08:00 EU Current Account (sa) (Aug)
• 10:00 UK CBI Industrial Trends (20th-25th) (Oct)
• 12:30 CA Wholesale Sales (Aug)
• EU EU Foreign Ministers Hold Meeting in Luxembourg

Original post