ASX 200 Bears Press Their Case as Squeeze Conditions Build

• ASX 200 slides back towards 8600 support
• Iran headlines, CSL downgrade weigh on sentiment
• Trump-Xi meeting may fuel another squeeze higher

8600 returns to focus

Our ASX 200 contract remains obedient to the sideways trading range it’s been bouncing around in over the past month, attracting bids on dips to 8600 with offers emerging on pushes towards 8900, with a moving average zone comprising the 50, 100 and 200-day the area of interest located in between.

Source: TradingView

Right now, on the back of the latest Iran war headlines and an earnings downgrade from former giant CSL, the index is slinking back towards the lower end of the range, putting it on the radar for trade ideas. Should the price revisit 8600 and bounce, longs could be set with a tight stop beneath for protection, initially targeting the 100 and 200-day moving averages which are running basically parallel to each other from 8791. A break above that moving average zone would put the top of the range at 8900 in focus.

Even dips towards 8650 may offer a decent entry level, making note of the sequentially marginally higher lows we’ve seen over recent weeks.

The oscillators marginally favour downside over upside right now, with RSI (14) breaking its uptrend and shifting beneath 50 while MACD has flipped negative after crossing beneath the signal line from above. While that suggests longs may struggle, the message from the oscillators should not carry as much weight as usual given the tricky macro environment. And even then, while they favour downside, it’s hardly a slam dunk case for shorts given where both indicators sit.

Squeeze risk is building

Rather than putting too much weight on momentum or domestic factors, including Tuesday's Australian budget, the reason I’m focused on longs stems not only from where the index finds itself in the range but also the geopolitical backdrop we find ourselves in this week.

While Donald Trump has slapped down the latest counterproposal from Iran as totally unacceptable, just how long this risk-off episode will last remains debatable. Not only has the Trump administration shown a reluctance to re-escalate the conflict, but we’ve often seen leaks via media sources that suggest in private both sides are glacially moving towards some form of agreement.

Whether true or not is irrelevant; it’s how markets react to such headlines that’s important, and right now they leap at the opportunity to buy dips.

Ahead of Trump’s visit to China to meet with Xi Jinping, traders need to ask what message he’ll be pushing beforehand. Will it be negativity towards Iran and trade, or that negotiations will ultimately deliver a positive outcome? History suggests it will almost certainly be the latter, meaning those markets closely tied to the performance of the Chinese economy, like the ASX, may find a rare window for outperformance in the days ahead.