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By Stuart McPhee

Australia 200 for Friday, September 5, 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 few days 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.

Australian retail sales rose for a second month in July as consumers rediscovered department stores while dining out more, a promising start for both consumption and economic growth in the third quarter. Thursday's figures from the Australian Bureau of Statistics showed retail sales rose 0.4 percent in July to a record A$23.3 billion ($21.8 billion). That built on a 0.6 percent increase in June and marked the best two months so far this year. That was a welcome step-up from the previous few months when consumer caution over an unpopular government budget combined with mild autumn weather to knock sales flat. The improvement is important as the A$270 billion retail sector accounts for 17 percent of Australia's A$1.6 trillion in annual gross domestic product (NYSE:GDP) and is the second-biggest employer, providing 10 percent of all jobs. It suggests household spending started the current quarter on firmer footing and augured well for faster economic growth. Data out on Wednesday showed the economy expanded by a moderate 0.5 percent in the second quarter, though growth for the year was still a solid 3.1 percent. "A better start to Q3 is appearing from the likes of business and consumer confidence, hints of better consumer spending and a solid pipeline of dwelling investment activity ahead," said David de Garis, a senior economist at National Australia Bank.

(Daily chart below)

Australia 200 September 5 at 00:20 GMT 5641 H: 5671 L: 5619

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 get back into gear and maintain its recent surge, continuing 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.

Economic Releases

  • 05:00 JP Leading indicator (Prelim.) (Jul)
  • 09:00 EU GDP (2nd Est.) (Q2)
  • 12:30 CA Labour Productivity (Q2)
  • 12:30 CA Unemployment (Aug)
  • 12:30 US Non-farm & Private Payrolls (Aug)
  • 12:30 US Unemployment (Aug)
  • 14:00 CA Ivey PMI (Aug)
  • JP BoJ Publication of Monthly Report

* All release times are GMT

Source: Australia 200: Eases Away From Multi-Year High Under 5650