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By Stuart McPhee

Australia 200 for Friday, August 29, 2014

The Australian 200 Index has finally been able to surge higher to a new six-year high around 5650 late last week before easing off to finish out the week. However, since that time it has done very little but consolidate around 5620. In moving up to the multi-year high, it enjoyed a solid move higher bouncing strongly off the support level at 5400. 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 recent strong rally. In its recent fall, 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 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.

The 5400 and 5500 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 strongest demand at Australian bond auctions in a decade reflects yields in a sweet spot: more stable than those in the U.S. and higher than those in Europe. A sale of A$500 million ($470 million) in three-year debt this month drew bids for seven times that amount, the most since 2004, government data show. A A$200 million auction of four-year inflation-linked notes was similarly oversubscribed and today's A$500 million offering of five-month bills went to just two buyers. Australian bonds are the world's best performers during the past three months, including currency gains. Reserve Bank of Australia Governor Glenn Stevens has said he plans to keep interest rates on hold as he protects two decades of uninterrupted economic growth. In Europe, which is facing the threat of deflation, bond yields have plunged to records, curbing demand for the securities. Federal Reserve policy makers are considering raising interest rates, fueling speculation Treasury prices will fall.

(Daily chart below)

Australia 200 August 29 at 00:15 GMT 5616 H: 5616 L: 5616

Australia 200 Technical

S3S2S1R1R2R3
5400530050005650--

During the hours of the Asian trading session on Friday, the Australia 200 Index will be looking to see if it can maintain its recent surge and continue to push higher from its recent six year high around 5650. 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: 5650.

Economic Releases

  • 01:00 NZ NBNZ Business Confidence (Aug)
  • 01:30 AU Private Sector Credit (Jul)
  • 03:00 NZ Monetary Aggregates M3 (Jul)
  • 05:00 JP Housing starts (Jul)
  • 06:00 JP Construction orders (Jul)
  • 09:00 EU Flash HICP (Aug)
  • 09:00 EU Unemployment (Jul)
  • 12:30 CA GDP (Jun)
  • 12:30 CA Industrial product price index (Jul)
  • 12:30 CA Raw Materials Price Index (Jul)
  • 12:30 US Core PCE Price Index (Jul)
  • 12:30 US Personal income & spending (Jul)
  • 13:45 US Chicago PMI (Aug)
  • 13:55 US Univ of Mich Sent. (Final) (Aug)

* All release times are GMT

Source: Australia 200 - Taking A Breather Around 5620