A steady close by US markets and strong performances by iron ore and copper have left the ASX200 in the position of overshooting to the downside yesterday.
Profit takers have been waiting in the wings and started to get active in the local market yesterday as signs of weakness began to emerge. However, some of this looks like being unwound early with futures markets indicating a higher open for the ASX 200 this morning.
A key issue for chart analysts today will be whether the ASX 200 moves above yesterday’s high of 5807. Failure to do so will mean that today’s range is likely to be inside yesterdays. This is a neutral outcome that will not reverse the short term downtrend that started yesterday and would leave a negative question mark hanging over the market’s head.
While potential profit takers on stock markets have become trigger happy following good gains since the US election, they have been given little in the way of a catalyst to trigger selling. Economic news continues to show progress with further gains in China’s producer price inflation being a case in point. Investors appear content to wait on the US reporting season which is about to get underway and is expected to be positive.
Energy stocks may be one area of weakness in early trading this morning. The US oil price has fallen 6% over the past 2 trading sessions. It also finished on its low, suggesting that the current price adjustment has further to go. Oil markets are responding to doubts about how fast Iran will scale back production and indications of a gradual increase in US production.