The Australian share market faces a test today. After underperforming major markets in September weakness returned in trading yesterday. This morning positive overnight trading has futures markets pointing to an up day. However this is the same start as yesterday, and the potential for a negative day looms if the top down sellers return.

The selling pressure is harder to explain in light of a general “risk on” flavour. Although holidays in China mean iron ore markets are effectively closed industrial metals such as copper and aluminium are finding support. Commodity biased markets like Canada and New Zealand are outperforming. Conversely safe havens such as gold and bonds are sliding.

Recent Australian manufacturing, credit growth and job advertisement data is all positive, yet short positions in shares are increasing across the board. Concerns about the outlook for the Australian dollar could be driving international investors away. The potential for a stronger US dollar has many strategists revising their AUD targets downward, making local shares unattractive.

The major worry is a downturn in Asia Pacific and US markets. The Australia 200 index is sitting just 1% above major technical support at 5,650. A negative global pulse combined with the current pressure could see a significant slide.