Talking Points:

  • The ASX 200’s charts look ugly. The downtrend from May 1’s peak is very much in place
  • A clear, pennant pattern suggests more falls ahead
  • However, there are small flashes of light which bear watching

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The ASX 200’s daily chart looks pretty horrible right now.

The gloomy series of lower highs just keeps coming as it has done since the Australian equity benchmark topped out for the year on May 1. Another seems to have been confirmed just this week by the bulls’ failure to push on from Monday’s highs.

ASX 200 Technical Analysis: Nasty Daily Chart Just Got Gloomier

And if that chart isn’t enough to make your bullish heart sink, well, there’s more bad news. Take a look at this horribly persistent pennant formation:

ASX 200 Technical Analysis: Nasty Daily Chart Just Got Gloomier

That’s a nasty little run of converging trendlines, usually viewed as a “consolidation pattern.” What it means is that, once it breaks (and we’d be justified in adding “if it ever does” in this case), then the index will return to the trend in place before it formed. In this case that would inevitably mean further falls.

Well, so far so gloomy. But is there any cause for hope here? Well, it must be admitted, not much. There is however some chance that the 20-day moving average could be about to pop above the 50-day.

ASX 200 Technical Analysis: Nasty Daily Chart Just Got Gloomier

This could be at least a modestly bullish short-term signal and, moreover, it seems that all the ASX’s moving averages are in less steep downtrends. For the moment, this is “less-bad” rather than “good” news but still, it’s something. Also, if we home in on the index a little more tightly, we see that it is flirting with support levels which have held back bearish forays since the end of June.

ASX 200 Technical Analysis: Nasty Daily Chart Just Got Gloomier

The bottom line is that the ASX’s downtrend endures, but there may be some prospect that these levels are forming a near-term base. They certainly bear watching.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX