The Australian 200 Index (ASX: S&P/ASX 200) has enjoyed a three-day winning streak, riding the tailwinds of positive sentiment from Wall Street and domestic business conditions data. Investors cheered the prospect of nearing the end of the central bank tightening cycle, as evidenced by the Michigan Consumer Sentiment Index exceeding expectations. This bolstered risk appetite, pushing the ASX 200 higher despite mixed performance in the mining and energy sectors.
However, a note of caution emerges from the December business conditions report. While conditions remain above the long-run average, they’ve softened throughout 2023, mirroring the slowing economy. Business confidence, though recovering in December, still sits well below historical averages, particularly in manufacturing, retail, and wholesale. This suggests consumer spending may remain subdued, potentially capping the market’s upside potential.
The 4-hour chart shows that the index currently trades at 7,513.4, approaching a resistance level following a three-day uptrend. Despite trading above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), a recent downward crossover between the 20-SMA and 50-SMA suggests potential short-term bearish sentiment.
With the price action confined between the resistance level (7,537.0) and SMAs, short-term trading opportunities could exist should the price action break above the resistance level towards the 7,632.7 price level. A break above the 7,632.7 price level would leave the 7,732.1 within the bulls’ reach in the short term.
However, a break above the SMA would leave the 23.60% Fibonacci retracement level (7,424.7) to provide significant support, with a break likely to confirm the bearish momentum. A sustained break below the initial support could trigger a selloff lower, with the 38.20% (7,296.0) and 50.00% (7,192.0) resistance levels acting as next levels of significance lower.
The Australian 200 Index presents a mixed technical picture. Though bullish signals are present, the market faces headwinds from softening business conditions and potential consumer spending constraints. While the recent rally and improving fundamentals offer a compelling case for continued bullishness, the technical picture hints at potential near-term turbulence, with the 7,537.0 resistance level and SMAs likely to dictate short-term movement.
Sources: TradingView, Trading Economics, National Australia Bank, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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