Australia 200 - Looking To Break Through 5550 Again

 |  Includes: AUSE, EWA, FAUS, QAUS
by: Dean Popplewell

By Stuart McPhee

Australia 200 for Monday, August 18, 2014

The Australian 200 Index has fallen sharply over the last couple of weeks returning back to more familiar territory between the 5400 and 5500 levels, before rallying strongly last week to back above the key 5500 level. In its recent fall it moved down to a three week low around 5375, however at the beginning of last week it received solid support at the 5400 level which has allowed to consolidate and rally higher. The solid move higher a few weeks ago saw it move strongly up through both the 5500 and 5550 levels to reach a new 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. 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 occurred 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.

Economists this week found some comfort in consumer and business confidence gauges, but still had doubts about the economy's strength. A rise in the monthly Westpac/Melbourne Institute index of consumer confidence narrowed the gap between it and business confidence indicated in the previous day's survey by NAB, Royal Bank of Canada economist Su-Lin Ong said. But the two may not converge further in a hurry, she said. "We see limited scope for further substantial gains in consumer confidence." With the economy only "muddling along", further convergence might come from falling business confidence rather than rising consumer confidence, Ms Ong said. Commsec's Craig James noted that the weekly ANZ-Roy Morgan consumer confidence measure had fallen back after news of a jump in unemployment, partly reversing a rebound from a post-budget slump. "The good news is that modest wage growth and higher productivity should support the hiring intentions of employers," he said. Ben Jarman, economist at JP Morgan, looked past the immediate concern with consumer confidence. "The bigger issue is that the hard data reveal the economy to be losing momentum, from levels of domestic demand growth that are already sub-par."

(Daily chart below)

Australia 200 August 18 at 00:15 GMT 5535 H: 5535 L: 5535

Australia 200 Technical

S3 S2 S1 R1 R2 R3
5400 5300 5000 5500 5550 -
Click to enlarge

During the hours of the Asian trading session on Monday, the Australia 200 Index will be looking to see if it can maintain its recent surge and stay above the key 5500 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: 5500 and 5550.

Economic Releases

  • 22:45 (Sun) NZ PPI Inputs & Outputs (Q2)
  • 01:30 AU New motor vehicle sales (Jul)
  • 09:00 EU Trade Balance (Jun)
  • 14:00 US NAHB Builders survey (Aug)

*All release times are GMT