Falling US share prices overnight could not have come at a worse time for the Australian share market, at least from a technical point of view. After a failed attempt to rise through 6,000, the Australia 200 index finished yesterday finely poised just above the key 5,900 support level. The likely opening downdraft today will see it crack the level, potential sparking technical selling and a day of underperformance for local shares.
US share dropped despite a positive read on the services and non-manufacturing sectors of the economy. A fall against the news flow is a sign of underlying weakness. With the reporting season out of the way, the February rally that took US shares to all-time highs is looking tired, and there may be a corrective sell off that flushes the market.
One possible bright spot for the session is the energy sector. Oil prices responded positively to the stronger US data, potentially adding to interest in oil and gas stocks evidenced by the sector’s outperformance yesterday.
Traders are watching the Australian dollar closely. The relationship between the currency and the index has strengthened, and any falls in the AUD could bring further market support as traders anticipate international buying
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.