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Technical Analysis: Resurgent ASX Dares to Dream Of 6000

Technical Analysis: Resurgent ASX Dares to Dream Of 6000

David Cottle, Analyst


Talking Points:

  • The ASX 200 has bounced back with aplomb
  • Momentum may now take it back up to the 6,000 level
  • But the atmosphere gets thin up there, and not only technically speaking

Australia’s benchmark stock index staged a remarkable turnaround this week.

Just a few sessions ago it was skulking below trendline support, having tried and failed to crack the year’s peaks for a third time. But look at it now.

Right back up there: ASX 200

From the one-month low of 5681 hit on March 22 the index has surged more than 3%. With all the verdant green on the chart, the ASX even managed a daily close above its previous intra-day range high for the year of 5832. That peak had endured since mid-February but the index charged well above it on Tuesday and remains there.

Indeed, it’s now at its highest levels since April 2015.

Should the ASX manage to consolidate this admittedly very sharp rise, then investors will no doubt dare to dream about the psychologically important 6,000 point. But hitting that’s a tricky ask. The Aussie index last got tantalizingly close back in February 2015 before the bulls eventually gave up after four valiant attempts.

Before that we must go all the way back to the dying days of pre-crisis innocence – in 2007 and 2008 – to see the ASX at 6000. And it was hardly comfortable there even then.

To stray from technical analysis just for a moment, the index also looks a bit pricey. It’s reportedly trading on 16.1 times forward earnings. And that’s about 6% above the five-year average. Admittedly investors have paid more in the recent past, but not often. Valuations have also been revised upward quite substantially, especially in the raw-material sector, but that good news is of course in the price and won’t necessarily be repeated.

More ominously a move to 6,000 would see investors paying above 17 times earnings, and that’s not a level they’ve ever been happy with for long. So, while sustained momentum could get the index back to “starting with a six,” it may not linger at those rarified heights without some better fundamental news.

Would you like to know more about financial market trading? The DailyFX Trading Guide is all yours.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.