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Analysis

A potential head and shoulder top pattern surfaces in ASX 200

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The RBA raised the OCR by 50 basis points, the highest rate hike in 22 years. The big four banks’ shares tumbled into the second trading day, with CBA, ANZ, Westpac, and NAB all down between 2% - 5% at AEST 1:50 pm on Wednesday. Financials is the only sector that falls so far today. Westpac announced to pass the 50 basis points interest increase to borrowers, while economists believe that the aggressive rate hikes will dampen the economic outlooks. The RBA is criticized for “miscommunication” with the market participants, which rattles the bank stocks and the Australian bond markets.

Chart 1 – the sector performance in ASX 200 and the four bank stocks movements at AEST 1:50pm

Source: Bloomberg, CMC Markets NG (Click to see the enlarged picture)

Chart 2 – Australia 200 (cash), daily

Source: CMC Markets NG (Click to see the enlarged chart)

The index had a bearish break out on the near-term ascending trendline, facing further downside pressure to test the pivotal support range between 6,850 – 6,900, which is seen at the lows on both May 12, and March 8, also coinciding with the Fibonacci retracement of 23.60%. This may potentially form a shoulder and head top pattern, with the neckline on the same level of the pivotal supports stated above, indicating a break-out of the support may send the index deeper to the next medium support at 6,400.

However, if the index reverses the course and returns above the near-term resistance of 7,200 at yesterday’s open price, it could go re-test the further resistance at 50-day MA near 7,290.


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