ASX 200 index forecast: the plot thickens for Australian stocks

The ASX 200 index slipped for five straight days as a sea of red engulfed the stock market after Wall Street slump. The index, which tracks the biggest Australian companies, slumped to A$7,200, the lowest level since July 13th. 

Australians stocks plunge

Global stocks are on edge as concerns about the economy remain. A key source of the issue is China, the second-biggest economy in the world. As I wrote here, China published a set of weak data on Tuesday. Industrial production, fixed asset investments, and retail sales came short of expectations. 

Another report on Wednesday showed that new home prices dropped for the first time this year in July. The real estate sector, has come under pressure as Country Garden comes on the verge of collapse. 

Chinese numbers are important for the ASX 200 because of the volume of trade between the two countries. The index is also made up of big mining companies, which are sensitive to Chinese demand. 

The ASX 200 is not the only global index in the red. Wall Street indices continued slumping on Tuesday, with the Dow Jones falling by more than 300 points. 

On the positive side, data published on Tuesday showed that Australia’s wage growth retreated in July. This means that the Reserve Bank of Australia (RBA) will not hike interest rates again this year.

Looking at ASX 200 constituent companies, tech firms were among the worst performers on Wednesday. WiseTech Global stock plunged by over 4%. Similarly, companies like Xero and NEXTDC fell by over 3%.  Fletcher Building shares retreated by 7.6% after the company slashed its dividend. Dexus stock fell by 3.5% after the company reported a net loss for the quarter.

ASX 200 index forecast

ASX chart by TradingView

My last forecast of the ASX 200 index did not work out. At the time, I predicted that the index would soar to A$7,604. Instead, it has dropped to A$7,200. A closer look at the daily chart shows that it formed a major resistance level at A$7,411, the highest level on April 17th. It made a false breakout in July when it rose to a high of A$7,503.

The index has formed a triple-top pattern and moved below the 25-day and 50-day moving averages. At the same time, the Relative Strength Index (RSI) has moved below the neutral point at 50. Therefore, the outlook for the index is bearish, with the next support level to watch will be at A$7,004, the lowest level on July 10th.