Australia 200 – Falls to Eight Month Low Near 5150

Australia 200 for Friday, October 10, 2014

Since the beginning of September the Australia 200 Index has declined strongly from its multi-year high after running into resistance around 5650 back to enter its previously established trading range between 5400 and 5500, before falling further below 5200 and to an eight month low in the last few days.  It has enjoyed solid support from the 5200 level and is trying to rally higher after recently threatening to break through this level for the first time since February 2014. A few weeks ago the 5400 level was called upon to offer support as the index desperately tried to stay in touch with its range, however it fell through there before rallying strongly back up to 5400. It has now fallen sharply to an eight month low below 5200. Up until recently, the 5400 level had done well and propped up price to keep it within the range. For most of this year when the index has fallen to the 5400 level, it has bottomed out at around 5370 however this latest has failed as it continued to fall lower.

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 then 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 firmly established themselves as significant and now that we have seen a substantial break to one side, momentum has kicked in and seen the index fall strongly lower. 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. 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 regulators are keeping a close eye on bank lending for investment properties as risks are building in the sector, a top central bank official said on Thursday.  The RBA head of financial stability, Luci Ellis, said risks were mainly growing in Sydney and Melbourne, with almost half of all new financing for investors rather than owner-occupiers.  “Obviously that can’t continue forever,” Ellis told a conference on dysfunction in capital markets.  “We obviously need to keep a close eye on market developments, including lending standards,” she added. “Banks and other lenders need to consider the risks they are taking on, not just from individual loans, but from the collective effects of lending decisions on the system as a whole.”  The Australian Prudential Regulation Authority, which oversees the banks, is consulting with the RBA on whether it should adopt macroprudential rules aimed to limit the build up of leverage and risk-taking in the banking system as a whole, rather than just at individual banks.  “In doing so, it will balance the advantages and disadvantages in the context of financial system stability, safety, and efficiency, and it will consider how those measures can best be targeted,” said Ellis.

(Daily chart below)

Australia 200 October 10 at 02:20 GMT   5188   H: 5221   L: 5160

Australia 200 Technical

S3

S2

S1

R1

R2

R3

5200

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—

5500

5650

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During the hours of the Asian trading session on Friday, the Australia 200 Index is trying to rally higher and stay above the recent support level at 5200, after recently threatening to break through this level for the first time since February 2014. 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: 5200.

• Above: 5500 and 5650.

Economic Releases

00:30 AU Housing/Lending Finance (Aug)

05:00 JP Consumer Confidence (Sep)

08:30 UK Construction Output (sa) (Aug)

08:30 UK Trade Balance (Non-EU) (Aug)

08:30 UK Visible Trade Balance (World) (Aug)

12:30 CA Unemployment (Sep)

12:30 US Import Price Index (Sep)

18:00 US Budget (Sep)

JP BoJ release minutes

US World Bank & International Monetary Fund Annual Meeting (to 12th)

WLD OPEC Monthly Oil Market Report

* All release times are GMT

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