ASX 200 Momentum Stalls as bulls take a breather during Chinese holidays

ASX 200 is witnessing tepid action for past few days. The benchmark index is witnessing less volatility as it is trading in a tight range of 100 points from 6,900 to 6,800.  The current indecisive move in the index could be attributed to the ongoing weeklong holidays season in China, a major trade partner of Australia.  

China has now entered a weeklong Lunar New Year holiday season from 11 February 2021, leading to reduced activity in many commodity intense industries.

However, while the Chinese market is closed for the holidays, the ASX is closing tracking the global markets.

At present, the benchmark index is trading close to the short-term resistance level of 6,900, which the index previously breached but could not sustain.

ASX 200 Daily Price Chart (Image Source: Refinitiv Eikon Thomson Reuters)

On following the daily chart, it could be seen that ASX 200 has been trading in an uptrend with prices trailing above the 200- and 50-days exponential moving averages. The index is closing trading near the +2 Standard Deviation of the 20-day simple Bollinger Band®, which is overlapping with the short-term upward sloping resistance line; thus, could be decisive.

  • A break and price action above the same could seed bullish sentiments while failure to do so could once again prompt the index to test its medium-term upward sloping support line near 6,780, which is overlapping with the -2 Standard Deviation and 50-day EMA.
  • A break and price action below the same could seed bearish sentiments.
  • Furthermore, the major support for the index is at 6,166, level where the 200-day EMA is meeting the horizontal support line. A break and price action below the same might indicate a trend reversal.
  • On following few set of technical indicators, it could be seen that the index is showing a slight divergence with 14-day RSI, reflecting that the trend is losing strength near the short-term resistance.
  • However, the On Balance Volume (OBV) is moving in tandem with the price action, suggesting that the price action is well-supported by large volumes.

ASX 200 Weekly Price Chart (Image Source: Refinitiv Eikon Thomson Reuters)

On following the weekly chart, it could be seen that the index is trading above Span A of the Ichimoku Cloud with a positive crossover between the conversion line and the base line, suggesting that the major trend is an uptrend.

  • Also, Span A itself is trading above Span B, reflecting that short-term price movements over the past couple of weeks have been majorly towards upside.
  • However, the Average Directional Index (ADX) is showing a negative divergence with the price action on the weekly chart, which could be an early signal of a trend reversal. Also, the distance between minus DI and plus DI is now shrinking while the ADX is sloping downwards, suggesting that large moves in the index over the last 14 weeks have been towards the downside.
  • Additionally, the same could be confirmed by witnessing small undecisive bars followed by a large outside bar. However, the index has breached the high of the outside bar, but so far looks unable to sustain the same with prices now falling below the high of the outside bar.

 


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