ASX 200 Forecast: Index Drops to Find Support on Thursday

• The ASX 200, one of my favorite global indices, fell a bit during the trading session on Thursday, only to turn around and show signs of life.
• By doing so, this reinforces the idea that I had been thinking as of late, that perhaps the ASX 200 would have to continue to see a lot of back and forth action in order to digest the gains that had been such a strong part of the market action recently.
• After all, in the early part of August we were all the way down at AU$7500, and just a few days ago reached AU$8291, a significant improvement in a relatively short amount of time.

Technical Analysis

The technical analysis of this market of course is very bullish, despite the fact that we have seen a bit of selling pressure. The AU$8100 level is an area that previously had seen a lot of resistance, so therefore I would anticipate that there should be support there based on the premise of “market memory.” Underneath there, we have the 50 Day EMA, followed by the AU$8000 level, an area that would more likely than not attract a certain amount of attention due to the fact that we have seen action there previously, and of course large, round, psychologically significant figures tend to attract a lot of attention anyway.

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All things being equal, this is a market that has been positive for some time, and I recognize that will more likely than not continue to be the way forward. The market will continue to pay close attention to the idea of commodity that risk appetite, as the Australian index is highly correlated to hard assets as well as financial schemes going on in Asia as Australia does a lot of banking for construction loans.

At this point in time, I have no interest in shorting the index, but if we were to break down below the AU$7900 level, I would be a seller, as I think at that point in time, we would probably break down below the 200 Day EMA, perhaps even break it down further than that.

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