By Stuart McPhee
Australia 200 for Thursday, September 4, 2014
After spending the last week consolidating and trading in a very narrow range right around 5620, the Australian 200 Index has surged higher again to achieve a new multi-year high around 5660, however in the last day it has settled and moved little. This has all been preceded by 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 at the beginning of August 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.
Australia's economy is slowly shifting from its dependence on mining-led growth, but its recovery remains fragile. The economy grew by 0.5 per cent in the June quarter, taking GDP growth in the 12 months to June to 3.1 per cent, seasonally adjusted. An AAP survey of 15 economists showed GDP was expected to rise by 0.4 per cent in the June quarter for an annual rate of 3.0 per cent. JP Morgan economist Tom Kennedy said the figures were broadly consistent with the Reserve Bank's expectations. The data suggests the economy was transitioning, but the recovery remained fragile, he said. "The RBA have said that the second quarter would be a bit distorted because of a payback in net trade and we saw that, but we also saw a very strong uptick in inventory accumulation - which are products that firms created but didn't sell," Mr Kennedy said. "That category added 0.9 per cent to growth, and growth in the quarter was only 0.5 per cent, so that means essentially that everything else is pretty soft and a lot of that weakness was due to trade.
(Daily chart below)
Australia 200 September 4 at 00:10 GMT 5653 H: 5678 L: 5647
Australia 200 Technical
During the hours of the Asian trading session on Thursday, 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 5660. 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.
- 23:30 (Wed) AU AIG Construction PMI (Aug)
- 01:30 AU Retail trade (Jul)
- 01:30 AU Trade Balance (Jul)
- 11:00 UK BoE MPC - APF Total (Sep)
- 11:00 UK BoE MPC - Base Rate
- 11:00 UK BoE Monetary Policy Committee meeting and rate decision
- 11:45 EU ECB - Rate Announcements (Sep)
- 12:15 US ADP Employment Survey (Aug)
- 12:30 CA Merchandise Trade (Jul)
- 12:30 US Initial Claims (30/08/2014)
- 12:30 US Non Farm Productivity (Final) (Q2)
- 12:30 US Trade Balance (Jul)
- 12:30 US Unit Labour Costs (Final) (Q2)
- 14:00 US ISM Non-Manufacturing (Aug)
* All release times are GMT