ASX 200: Bearish Sentiment Remains Even After the Relief Rally

Summary:

In this ASX 200 forecast, we explain why the bearish sentiment is still there even after the index experienced a substantial relief rally today

The ASX 200 index erased earlier losses after bank earnings upgrade by Macquarie and strong Australian retail sales numbers. The index, which tracks the biggest Australian companies, rose to $6,956, which was substantially higher than the intraday low of $6,893.

What happened: The ASX 200 index has been under intense pressure. This week alone, it has dropped by almost 2%, in part, because of the overall weakness in global stocks. Indeed, in the United States, the Dow Jones and S&P 500 indices have also been struggling. The ASX rebounded today after data by the Australian Bureau of Statistics (ABS) showed that retail sales rebounded in March.

Also, a bullish report by Macquarie boosted confidence in the banking sector. The cimpny said that it expects ANZ earnings per share to rise by 1.9% while Commonwealth Bank’s earnings will rise by 0.4%. It also expects similar gains by Westpac and NAB. The ASX 200 index also recovered after the relatively strong update by BHP.

ASX 200 forecast

The ASX 200 index declined to a low of S6,895, which was the lowest level since April 7. On the four-hour chart, the index then bounced back to slightly below the 23.6% Fibonacci retracement level at $6,990. It has also moved between the 50-day and 100-day exponential moving averages.

Notably, the index seems to be forming a head and shoulders pattern, which is usually a negative sign in technical analysis. Therefore, in my view, the index will resume the downward trend as bears target the 50% retracement at $6,875. However, a move above $6,990 will invalidate this prediction.