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The recent move lower seems to have been driven by US crude hitting $35.24 yesterday and a general failure of Abenomics, causing JPY strength and hitting Japanese equities. Oil has found buyers today after a descent drawdown in the API inventory report, which has caused a mix of short covering and some organic buying from market participants. Oil does seem to be driving semantics and this should play into a tightening of credit spreads in Europe and US, and be positive for equities.
There has been strong participation in the move lower from 5216 on 18 March, with the percentage of companies above the 20-day moving average dropping from 80% to currently stand at 30%. The number of companies at a four-week high now stands at 3%, down from 26%. The market internals for the ASX 200 are fairly neutral, certainly relative to the S&P 500 where 93% of companies are above their 50-day moving average. After the rally in oil, S&P futures are up 0.5% and after a 9.2% jump in the VIX yesterday, we could see some selling of volatility today.
The ASX 200 has been moving lower in a bearish channel but has rallied nicely off channel support today. The five-, ten- and 20-day moving averages are all heading lower, with the RSI’s showing a bearish rate of change in price. However, in the short-term, a break of the 1 April low 4976 would be constructive and suggest a move into the top of the channel at 5030. This could be a better level to look at short positions on the index.