The benchmark S&P/ASX 200 Index declined in today’s trading, falling 0.31% with a close at 5440.5. The Index has now fallen three sessions in a row, for a total drop of 1.2%.
Weakness in commodity prices pushed mining and energy stocks lower on Wednesday, offsetting strength in banks. Volume was light as investors awaited the outcome of the key OPEC meeting in Vienna, Austria.
As a result of today’s move to the downside, the ASX broke near term, minor support at the 5440 level. The next area of support is at the top established November 11/14 at 5370.7. Holding this former resistance, which stands above a minimal 38.2% retracement of the advance from the November low, would result in no technical damage and keep the Index well-positioned to resume the advance.
At present, this former high is expected to hold, as the ASX appears to be merely working off what became an extreme overbought condition that developed as a result of the strong advance from the November low. Overbought conditions are now in the process of easing. Thus, selling has the potential to abate over the near term.
A resumption of the advance prior to oversold conditions becoming a factor would be considered a sign of strength. On a resumption of the advance, first resistance is now at the current rally high at 5520.9. Clearing this level would leave the target at the 5574 level, representing the high established in the latter part of August.
Key resistance for the Index is at the early August high at 5611. With the ASX 200 already clearing the 61.8% retracement of the August-November decline, the probabilities of a follow through advance to this level are high. Thus, the current setback is expected to be temporary and followed by further gains in the ASX 200.