Australia 200 - Not Getting 'Carried Away' Above 5500

by: Dean Popplewell

By Stuart McPhee

Australia 200 for Tuesday, July 8, 2014

So will the Australia 200 Index be able to maintain its break through the key resistance level at 5500 having enjoyed a solid week last week? It reversed a little yesterday after moving through the level so doubts still linger. There has not been a doubt on whether it will return there or not as it has moved back and forth between 5400 and 5500 for the last few months. In the early stages of last week it fell sharply back towards 5400 again and relied heavily on support around that level. Several weeks ago 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. These two levels have firmly established themselves as significant and any substantial break to either side will most likely be a significant move and be closely monitored. It is quite likely many are sitting on the sidelines waiting for the break before committing as they continue to watch the index move between these two levels.

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. Throughout the last couple of months it has been placing ongoing pressure on the resistance level at 5500 and a few weeks ago it was finally able to move through to a three week high before easing back again to this key level. Several weeks ago it slowly but surely eased away from its multi-year high achieved near 5560 however the following week it fell reasonably sharply and started looking towards the 5400 level which is near where it currently sits. In doing so it returned to back under the key 5500 level which has provided some reasonable resistance over the last few months.

For the bulk of the last few months, the Australia 200 Index has traded roughly between 5300 and 5500 therefore its return to back under 5500 was not surprising. The index has done well over the last couple of months to move steadily higher from support around 5300 up to beyond 5500, forming higher peaks and higher troughs along the way. The support level at 5300 may also be called upon should the index fall lower and will also likely play a role in providing some buffer from any decline. Since February, most of the trading activity has occured between 5400 and 5500 therefore the former level may also be called upon to prop up prices. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

RBA's chief Glenn Stevens said last week that markets find the idea of his board's "masterly inaction" unappealing. On cue, traders raised bets on lower interest rates. After Stevens spoke on July 3, 30-day interbank futures showed about a 56 percent chance that policy makers will lower the benchmark rate by a quarter-percentage point by March, compared with 30 percent the day before. The extra yield on Australia's 10-year note over similar-maturity U.S. Treasuries slid to 90 basis points last week, the least since October 2006. In the wake of a largely unchanged rate decision statement on July 1, Stevens caught some by surprise by saying investors are underestimating the probability of a "significant fall" in the Australian dollar at some point. The RBA's comments on policy stability were to clarify it didn't see a risk of imminent increases, he said. The Aussie completed its longest monthly rally since 2009 in June, threatening the competitiveness of exporters.

(Daily chart below)

Australia 200 July 8 at 00:45 GMT 5515 H: 5515 L: 5515

Australia 200 Technical

S3 S2 S1 R1 R2 R3
5400 5300 5000 5550 - -

During the hours of the Asian trading session on Tuesday, the Australia 200 Index will be looking to see if it can find some support at the key 5500 level after pushing through this key level. 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: 5400, 5300 and 5000.

• Above: 5550.

Economic Releases

  • 23:50 (Mon) JP Bank Lending Data (Jun)
  • 23:50 (Mon) JP Current Account (May)
  • 01:30 AU NAB Business Conditions (Jun)
  • 01:30 AU NAB Business Confidence (Jun)
  • 08:30 UK Industrial Production (May)
  • 08:30 UK Manufacturing Production (May)
  • 14:00 UK NIESR GDP Est. (Jun)
  • 19:00 US Consumer Credit (May)
  • JP Economy Watchers Survey (Jun)

*All release times are GMT