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By Stuart McPhee

Australia 200 for Tuesday, August 19, 2014

The Australian 200 Index has enjoyed a solid move higher over the last week bouncing off the support level at 5400 up to a two week high above 5550. In its typical style of late, just prior to the surge, it fell sharply over a couple of weeks returning back to more familiar territory between the 5400 and 5500 levels, before the strong rally. 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.

A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens. Australia's misery index - the sum of unemployment and inflation rates - is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings Inc. froze credit markets around the world and triggered the deepest recession in the U.S. since the Great Depression. While policy makers from the U.S. Federal Reserve to the European Central Bank are still pumping stimulus into their economies at least in part to address job-market slack, Australia's price pressures limit that option for the RBA. The upshot for the nation's businesses and consumers: little prospect of lower borrowing costs from Stevens, 56.

(Daily chart below)

Australia 200 August 19 at 00:05 GMT 5571 H: 5571 L: 5571

Australia 200 Technical

S3S2S1R1R2R3
5400530050005550--

During the hours of the Asian trading session on Tuesday, 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: 5550.

Economic Releases

  • 23:50 (Mon) JP Customs Cleared Trade (Jul)
  • 01:30 AU RBA minutes released
  • 03:00 NZ RBNZ Inflation Expectations (Q3)
  • 05:00 JP Leading indicator (Final) (Jun)
  • 08:00 EU Current Account (Jun)
  • 08:30 UK CPI (Jul)
  • 08:30 UK Input & Output Prices (Jul)
  • 08:30 UK ONS House Prices (Jun)
  • 12:30 US Building Permits (Jul)
  • 12:30 US CPI (Jul)
  • 12:30 US Housing Starts (Jul)

*All release times are GMT

Source: Australia 200 - Threatening To Break Higher Again