Technical Analysis: ASX 200 Loses Its Grip On Key Support
- The ASX 200 has slipped below a support line which has been important since late February
- This doesn’t have to be bad news
- But a recovery needs to come soon
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My last technical peep at the ASX 200 was an attempt to draw your attention to the curious importance of February 28, 2017.
There was nothing immediately special about the low printed on that day, around 5675.30, beyond the fact that it put an end to a modest downtrend. But that level went on to become quite significant support for the index and remained so until this week. Indeed, it had repelled the bears on no fewer than three occasions since February and formed the meaningful low for the year.
But now it has given way.
Wednesday’s marked slip for the index took us down to the 5646 area, where we remain.
Alright, you may argue, perhaps the importance of that support was always overdone.
After all, its significance is really only down to a few days’ intraday lows since February 28 – on March 22, May 18 and May 30.
But a look at the chart below would suggest that this level means something and that its break could be important.
At a minimum, any fall below it sharpens the downtrend in place since May 2.
There is a caveat though, albeit one which means we must stray from technical analysis. It is possible that markets everywhere are a little more than usually risk averse at present. Various looming global events may make this so. Not least among them is Thursday’s UK general election, the prize of which will be the dubious privilege of negotiating Brexit. Then there’s former Federal Bureau of Investigation Director James Comey’s testimony to the US Senate.
If either or both proceed as markets hope – i.e. preserving the status quo ante – then we could see a snap back in risk appetite which should benefit the ASX at least as much as any other index.
In that case, watch carefully how much further it can get above those February 28 lows. If risk appetite remains restrained however, expect the downtrend’s dominance to endure.
--- 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.