The Australian 200 Index (ASX: S&P/ASX 200) has sunk into its fifth consecutive session of losses after falling 0.63% during the Thursday trading session, mirroring a global pullback driven by hawkish central bank expectations and weaker-than-expected economic data. Domestically, a surprise slump in employment in December further dampened sentiment, while falling commodity prices weighed heavily on resource stocks.
Investor optimism, which fuelled a strong rally at the end of 2023, has significantly waned. The prospect of rate cuts later this year has been pushed back, with markets now anticipating a tighter-for-longer monetary policy. This shift in sentiment, coupled with concerns about slowing economic growth in China, a key trading partner, has triggered a broad sell-off across Australian equities.
Technical
The 4-hour chart shows that the index futures currently trade at 7,350.1, confined between the 23.60% and 38.20% Fibonacci retracement levels following a break below the 50-SMA earlier in the week. This price action is trading below the 20-SMA (green line) and 50-SMA (blue line) but remains comfortably above the 100-SMA (orange line), indicating a potential underlying support.
The recent downward crossover of the 20-SMA below the 50-SMA suggests a change in short-term sentiment towards the index and likely indicates the presence of bearish bias. The RSI is nearing oversold territory at 31.27, suggesting potential for a short-term bounce. However, the RSI-based MA remains above the RSI, indicating further downside potential.
With the price action confined within key Fibonacci retracement levels, short-term trading opportunities could exist as the price action oscillates between the 23.60% Fibonacci retracement level (7,424.7) and 38.20% Fibonacci retracement level (7,296.0). A break above the 23.60% Fibonacci retracement level (7,424.7) could confirm a bullish reversal, potentially paving the way for a climb towards 7,537.0 and even the 29-month high of 7,632.7.
A break below 38.20% Fibonacci retracement level would leave the 50.00% Fibonacci retracement level (7,192.0) and 61.80% Fibonacci retracement level (7,088.0) within the bears’ reach in the short-term.
Summary
The Australian 200 Index is under pressure as bearish sentiment takes hold. While Fibonacci retracement levels offer potential short-term trading opportunities, the medium-term outlook remains tilted towards the downside. A sustained break above the 23.60% Fibonacci retracement level could ignite a bullish momentum, while a breach below the 38.20% level could open the doors for further bearish descent.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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