The ‘Aw Shucks’ 200 braces itself for the open

Read our guide on the ASX 200 trading guide

It has not been a good time to be long on the ASX 200. Since its YTD high, the index has fallen over 9%, half of which occurred over the past three sessions. Three of the past five days has seen the index fall over -1% in a day, two of which fell over -2%. Nice.

That said, the ASX is not alone as it has been swept along with a risk-off sentiment for equity traders globally. The Fed are set to hike rates several times this year and tensions between Russia and Ukraine persist which has been a large driver to the risk-off tone. Naturally this has seen the ASX 200 VIX (volatility index) and implied volatility exploder higher as investors rush for the exit and price in their worst fears.

Read our guide on the Volatility Index

As of Tuesday’s close, the ASX 200 VIX rose to an absolute level of 18.53 – a level not seen since November 2020. And this means that investors expect annualised volatility to reached 18.5% over the next 30-days. Yet perhaps the absolute level is not the best metric to assess near-term volatility. If we look at the 10-day detrended oscillator of the VIX it better shows the fluctuations of volatility cycle. And it currently suggests that the recent spike in volatility is at (or fast approaching) a cycle high.

Taking that into consideration, we are now questioning whether the worst of this leg lower is over, assuming it has not bottomed already. Of course, for any noteworthy turnaround we are going to need to see a rebound in global sentiment. And if this is the beginning of a bear market we also need to factor in the obligatory, volatile bounces during its white-knuckle ride. This means we are unsure whether any bounce could be of the dead-cat variety ahead of its next leg lower, or a v-bottom recovery. But as we highlight below, the ASX 200 has fallen sharpy into a key zone of support which may hold, at least initially.

We can see on the daily chart that bearish momentum on the ASX 200 accelerated when prices broke beneath its 200-day eMA. Prices closed below 7,000 on Tuesday for the first time since May, further showing bears have having a picnic. Yet Friday’s low perfectly respected the 6925 support level, which is just above the monthly S3 pivot point and 23.8% Fibonacci retracement between the March 2020 low to all-time high. Furthermore, RSI (14) and RSI (2) are ‘oversold’. We use that term lightly because, due to the velocity of the bearish move, oscillators have nowhere else to be other than ‘oversold’. But the RSI (2) is 1.3, its most bearish level since March 2020, and this indicator setting is generally more reliable for producing oversold signals for quick fluctuations.

In a nutshell, we have technical clues that suggest the downside may be stretched over the near-term, coupled with a high reading on VIX (which is an indicator which generally does not stay high for long). If sentiment improves it could trigger a bounce from current levels yet, at the same time, we need to be on guard for a break lower of the support zone – which makes the zone around 6900 a pivotal level for traders to focus on for the remainder of the week.

How to trade with City Index

You can easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.