ASX 200 Cracks In The Midst Of Plunging Commodity Prices

On Wednesday (1/6), the commodity-reliant S&P/ASX 200 index stumbled sharply following a sharp down-move in stocks of materials companies and energy firms.

A recent slip in base metals contributed to dragging down a gauge of miners within the S&P/ASX 200 index. Last month, iron ore was on course for a 24% tick-down, the worst performance in the last three years. Meanwhile, according to Argonaut Securities, steel production came closer to the record high of 2.4 million metric tons per day, causing the steel price to fall 28% in May. Consequently, materials firms such as BHP Billiton Limited, RIO Tinto Limited and Amcor Limited, 3 of the top 20 companies with highest market capitalization on S&P/ASX 200 index, today suffered setbacks of 2.86%, 1.57% and 0.80% from the previous close respectively in their stock prices.

In addition, the slide in oil prices overnight, knocked down energy companies in the S&P/ASX 200 index. West Texas Intermediate crude slipped to $48.80 a barrel, and Brent crude oil plunged to $49.96 per barrel. Oil prices were dampened into a gloomy situation as representatives of OPEC countries hinted that this Thursday’s meeting in Vienna can hardly reach an agreement to alter the ‘no limit’ production levels currently in effect. Accordingly, Woodside Petroleum Limited, Oil Search Limited 10T and Caltex Australia Limited slid down 1.86%, 1.47% and 1.04% from the last settlement.

Earlier in the Asian trading session today, according to a report from Australian Bureau of Statistics, the country’s GDP in the first quarter of 2016 advanced 1.1% from the preceding quarter, while the unemployment rate has fallen to a 2½-year low of 5.7%. These statistics also contributed to a slight increase of 0.7% in the household expenditure. A tick-up in the consumer spending may have an encouraging impact on the consumer discretionary sector. Australian Agricultural Company Limited and Tatts Group Limited were up 3.71% and 2.28% from the prior close. However, the up-move of 45 company stocks (including the consumer discretionary firms) could not offset the drop in 151 stocks in materials and energy sectors.

Investors will be keeping a close eye on the upcoming OPEC Countries meeting on June 2 and Thursday’s Australian Retail Sales data, which is forecast to come in at 0.3% for April. Trade Balance data will be released at the same time and is expected to show a deficit of Australian Dollars 2.11 B, marking almost 2 consecutive years that the trade balance has been in the negative.

asx d1

Fig. S&P/ASX200 D1 Technical Chart

ASX 200 started this month with a big gap-down, extending its bearish move from a record high of 5433.92. RSI is pointing down, lower than the average, indicating that the bear is stepping in. However, the green trend signal indicator under the price chart still signals a long position. Hence, technically, the index is anticipated to tumble continuously in the near future, and enter the area around the 38.2% level of the Fibonacci retracement. It may bounce back from there and resume the uptrend to cover the gap mentioned above.

Trade suggestion

Buy limit at 5239.41, Stop loss at 5211.06, Take profit at 5289.86

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