The ASX 200 surged on Monday in its strongest session in almost three weeks, as sentiment improved sharply following positive developments in the U.S. The index opened at its session low and closed at its high, forming a bullish engulfing candle that highlighted renewed risk appetite. Nine of eleven sectors advanced, led by Information Technology (XIJ) and Materials (XMJ) — a complete reversal of Friday’s weakness — while defensive sectors such as Consumer Staples (XSJ) and Real Estate (XRE) lagged.
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ASX 200 Market Snapshot
- Sentiment was buoyant on Monday on news the US senate had agreed on a bill to cease the government shutdown
- The ASX 200 enjoyed its best trading day in 18 and formed a bullish engulfing day which opened at the session low and closed at its daily high
- 9 of its 11 sectors advancing, with 134 stocks rising, 51 declining and 15 remaining flat
- Information technology (XIJ) and materials (XMJ) led the ASX higher, which was a complete reversal of Friday’s bearish price action
- Consumer staples (XSJ) and Real Estate (XRE) were the two sectors that declined
Chart analysis by Matt Simpson - source: ASX, LSEG
ASX 200 Sector Technical Outlook
Energy Sector (XEJ): Momentum Builds Despite Softer Crude
The ASX 200 Energy sector (XEJ) rose for a third consecutive week despite crude oil prices trading slightly lower. The sector also extended gains for a third straight day on Monday, reaching a 37-day high.
Chart analysis by Matt Simpson - source: ASX, TradingView
- Woodside Energy (WDS) – the largest stock in the energy sector – closed above $26 to mark a nine-week high and now trades just 1% below its September peak. With both the daily RSI (2) and RSI (14) overbought and resistance approaching, the stock could soon meet resistance — at least in the near term.
- Whitehaven Coal (WHC) is attempting a break above last week’s high, though the choppy nature of recent price action on the daily chart raises the risk of a false break and reversal lower. Also note the spinning top doji candle last week, which was only marginally higher than the shooting star seen at the August high.
- Santos Limited (STO) remains confined within a tight range amid bearish consolidation. While a short-term move higher is possible, it could simply prove a minor correction against the sharp -23.3% decline from the September high to the October low.
Information Technology Sector (XIJ): Signs of a Near-Term Cycle Low
The Information Technology sector (XIJ) rose 2.4% in its best session in 10 weeks, forming a two-bar bullish reversal pattern known as a dark cloud cover. With both the daily RSI (2) and RSI (14) having reached oversold territory on Friday — and given the scale of the recent selloff — a near-term cycle low may be forming.
Chart analysis by Matt Simpson - source: ASX, TradingView
- Xero Ltd (XRO) printed a one-day bullish reversal candle known as a shooting star. Daily volume was above average and reached a six-day high, suggesting a potential swing low around $140. Its weekly RSI (2) also hit its most oversold level in 31 weeks last week.
- Wisetech Global (WTC) jumped 6.2% in its strongest day in six months. Given its firm daily close back above the April low, alongside a multi-week bullish RSI (2) divergence on the weekly chart, it reinforces the case for a near-term cycle low within the technology sector.
- Technology One (TNE) formed a bullish outside day just above upper gap support at $35.05, hinting at a near-term swing low. A multi-week bullish divergence has also emerged, adding weight to the recovery scenario.
Healthcare Sector (XHJ): Oversold Conditions Hint at a Bounce
Healthcare (XHJ) is another sector showing oversold conditions. After falling -8% two weeks ago, last week’s narrow range suggests bears are losing momentum above the 2023 low. Prices are consolidating within a tight band on the daily chart, and the longer they hold above recent lows, the greater the odds of a short-term pop higher.
- CSL Limited (CSL) not only mirrors the broader sector but effectively defines it. A small inside week formed near its 16-month low last week, following the -27% decline seen the week prior. While investors may not be rushing to buy at these levels, bears should tread carefully to avoid getting caught short during a countertrend bounce. CSL still has scope to retest its recent low near 158.43, though a rebound may occur first.
ASX 200 Technical Analysis
A bullish engulfing candle formed at the September low, marking the second false intraday break around that key level. The pattern closed above both the 100-day SMA and EMA, as well as the 8862 swing low. Notably, the ASX 200 also shows a bullish divergence on the daily RSI (2) leading into the recent swing low.
Upside targets for bulls sit around 8950 and 9000, though caution is warranted as a lower high could form near those resistance zones — consistent with bearish signals seen on higher-timeframe charts and across several sectors.
Chart analysis by Matt Simpson - Source: TradingView, ASX SPI 200 Index Futures
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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