It looks like the ASX could be due a bounce, though whether it can simply storm to new cycle highs could lay in the hands of domestic data and global sentiment. Traders will keep a close eye on Wednesday’s inflation data and household spending and employment reports released on Thursday. Combined, these reports have greater potential to sway RBA monetary policy expectations than their recent meeting.
View related analysis:
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- Australian Dollar Softens, ASX Perks Up After Mildly Hawkish RBA Hold
- Nasdaq 100 Leads Wall Street Rebound as Middle East Peace Boosts Risk
ASX 200 Outlook: A Bounce Is Brewing, But Data Risk Looms
ASX 200 Market Snapshot
- The ASX fell for a third consecutive day on Monday, although its 0.6% trading range was the narrowest in nearly three weeks, suggesting bearish momentum is fading as prices test support.
- Six of the 11 sectors closed lower, led by XIJ Information Technology (-4.2%) and XHJ Health Care (-1.3%). XDJ Consumer Discretionary (+0.6%) and XFJ Financials (+0.5%) led the four sectors that finished higher.
- 111 stocks advanced, 83 declined and 6 were unchanged.
- Volatility tends to pick up over the next couple of sessions based on daily averages. Tuesday's average range has been 104.4 points over the past three months, rising to 109.9 points on Wednesday.
Source: ASX, LSEG
ASX 200 Correlations Highlight Financials and Materials as Market Leaders
Financials and Materials remain the key sectors to watch, with both maintaining strong positive correlations with the ASX 200 over the past 10 and 20 trading days. Materials have been particularly influential recently, posting a near-perfect 0.99 correlation over the past three sessions, while Financials remain highly correlated across all timeframes. Industrials, Health Care and Real Estate have also shown strong short-term relationships with the index, suggesting gains have been relatively broad-based rather than concentrated in a single sector.
Globally, the ASX 200 continues to take its lead from Wall Street. Correlations with the Nasdaq (0.79), Dow Jones (0.73) and S&P 500 (0.55) remain firm over the past 20 days, while the Nikkei's correlation has risen to 0.79. Bond yields continue to exert a strong inverse influence, with the 3-year bond future holding a -0.84 correlation over 20 days. Short-term correlations have become distorted by the small sample size of the three-day measure, but overall the data suggest traders should continue monitoring Financials, Materials and US equity indices for the strongest directional cues.
Source: ASX, LSEG
ASX 200 Technical Analysis
Options Traders Focus on 8750 Support and 8900 Resistance
The ASX 200 remains caught between a major gamma floor at 8750 and a ceiling at 8900 ahead of Thursday's expiry. Heavy put open interest at 8750 aligns with the 200-day SMA and 200-day EMA, creating a notable area of support where bulls may be tempted to buy dips.
Meanwhile, 8900 is the first meaningful upside barrier where call open interest clearly outweighs puts, making it a potential target for bulls if sentiment improves ahead of Australian data on Wednesday and Thursday.
However, unless the index can accept above 8900 or below 8750, traders should be prepared for choppy, range-bound trade between support and resistance into expiry.
SPI 200 Reclaims 200-Day EMA as Pullback Loses Momentum
The daily SPI 200 futures chart shows that the regular trading-hours low found support at the monthly VWAP and has reclaimed its 200-day EMA. Large-volume candles accompanied the rally into the recent highs, while volumes have been lighter during the three-day pullback. That suggests the decline is more likely a correction within the broader advance than the beginning of a deeper bearish move.
Source: ASX, TradingView
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
