Bounce in Europe & mixed US performance on Friday night, ASX futures down 4 points

Traders will continue to use key levels on the ASX 200 to formulate trades, with a base of 5,000 points continuing to provide support that will encourage buying above that level. You can see in today's first chart that the Australian equity market is consolidating and experiencing contracting levels of volatility, ever since the last August falls shook markets. As these movements get smaller, the likelihood increases that we'll see a break out of the triangle consolidation pattern that you can see forming from the two lines on the chart. At this stage, we do not hold a strong view on whether the market will break higher or lower next, and we are waiting for either a daily close below last week's low of 4,988 (bearish) or a daily close above 5,150 to become less bearish in the short term.

The reason why we'll talk about technical indicators in a market like this is because they're a great way of illustrating sentiment and market dynamics, without feeling the need to try and explain a world that rarely makes sense.

Today's second chart shows the AUDUSD currency pair, which has--encouragingly for buyers--remained elevated from its early September low of US$0.6893. An absence of evidence that the AUDUSD is progressing into a deeper down trend is a good thing for the Australian share market, with unhedged short-term foreign traders more inclined to be buyers if they are not exposed to 'trending' currency risk. (A falling Australian dollar is loss-making for an unhedged foreign investor.)

Finally, Australia's ASX 200 (orange) is sitting right where the US S&P 500 (black) is in terms of year-to-date performance. You can see the changing landscape earlier in the year by way of the RBA's rate cut cycle seemingly ending (and pushing bond yields higher) and the financial system inquiry that erased the early 2015 gains on the ASX 200, and now the monthly correlation with the S&P 500 is quite tight.


Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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