I received an email from someone during the week about support and resistance and their application on indices.
For many years I didn’t subscribe to the importance of support and resistance with indices because they just track a group of stocks. Therefore, there are not a bunch of people sitting there waiting to sell the index at 5800 and therefore provide resistance to it moving any higher.
Further, the index might have been at 6000 two years ago and if it gets to 6000 next week for example, the price of the top 200 stocks could all be completely different from what they were two years ago.
However, there is no doubt that market participants (large and small) look at the key levels in an index and are influenced by it. If the index approaches 6000 again and you have seen the index sold off every time it gets to that level, are you super bullish to buy a whole bunch of stocks or might you wait a little?
So whilst S&R in an index are not the direct result of people buying and selling the index, there is no doubt those levels still play a role.
Speaking of indices …
ASX200
To the more boring thing first. The ASX200 index continues to move between 5650 and 5800 and not do much else. The selling pressure / resistance continues at 5800 and again, with the resistance in place and playing a significant role, the key level of 6000 seems so much further away.
The all time highs / lows reading this week is 10 / 2. Some of the all time highs include Iress, Iselect and Rural Funds Group. The lows are Myer and Pacific Smiles.
Daily chart of S&P/ASX200 Index | Image from MetaStock
AUD/USD
The Australian dollar has enjoyed another sensational week moving strongly higher again more than 150 pips up to its highest level in over two years. It has come very close to reaching the 0.80 level, which you would expect to provide some resistance for a period of time. It has formed a classic doji candlestick near that level indicating some weakness in the up trend.
Interestingly, the 0.80 level doesn’t have too much history of being a key level. If you scroll back through a chart of the AUDUSD, you have to go back to around mid 2010 to see the 0.80 level having a significant impact on price.
As I type this, it is currently trading around 0.7912.
Daily chart of AUDUSD | Image from MetaStock
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