Australia 200 - Threatening To Move To Multi-Year High

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

By Stuart McPhee

Australia 200 for Wednesday, August 20, 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; however, it appears to be looking beyond to a new multi-year high which is within reach. 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.

The Reserve Bank of Australia has warned of a "significant degree" of uncertainty about the economic outlook, but reaffirmed its view that a period of stability in interest rates is likely prudent. Minutes from the central bank's August meeting show the board expects inflation to remain consistent with its target of 2 per cent to 3 per cent over the next two years, despite a recent rise. The bank again commented that the exchange rate remained high and was offering less assistance than it could in achieving balanced economic growth. "Members noted that there was inevitably a significant degree of uncertainty about the outlook, given the number of forces working in different directions," the RBA said. The central bank is waiting to see how the economy shifts away from its dependence on mining investment, which is declining after being a key driver for around a decade. At its August meeting, the central bank again left the official cash rate on hold at a record low 2.5 per cent, meaning the rate has now been steady for an entire year. The RBA said GDP growth was likely to have slowed to a more moderate pace in the June quarter, after above-average growth in the March quarter on the back of a pick-up in non-mining activity. Non-mining investment doesn't appear ready to pick up the slack.

(Daily chart below)

Australia 200 August 20 at 00:10 GMT 5591 H: 5591 L: 5591

Australia 200 Technical

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

During the hours of the Asian trading session on Wednesday, the Australia 200 Index will be looking to see if it can maintain its recent surge and push to a new multi-year high above the key 5550 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

  • 00:30 AU Westpac-MI Leading Index (Jul)
  • 01:00 AU Internet Skilled Vacancies (Jul)
  • 04:30 JP All Industry activity index (Jun)
  • 10:00 UK CBI Industrial Trends (20th-25th) (Aug)
  • 12:30 CA Wholesale Sales (Jun)
  • 18:00 US Fed releases minutes from prior (Jul 29-30) FOMC meeting
  • UK BoE MPC minutes released

*All release times are GMT