Australian ASX 200 SPI futures are currently testing a crucial threshold, trading above 8000 points— a level that has previously impeded bullish momentum in 2024. To sustain this advance and potentially reach new highs, it may require either a significant rebound in iron ore prices or continued positive sentiment towards a global economic soft landing.
ASX 200 SPI Futures Face Critical Resistance
The SPI weekly chart reveals that the 8000-point mark has acted as a significant resistance zone, or “death zone,” for bulls. This analogy, borrowed from mountain climbing, illustrates how rallies have struggled to gain traction at this level. Numerous reversal patterns have emerged in this zone, especially in recent months, as highlighted by the red dots on the chart.
Conversely, the green dots on the chart indicate strong buying interest around the 7500-point mark, which had previously served as resistance from 2021 to 2023 but has since turned into support. This support level has become a crucial range for traders this year.
Having closed last week at a record high, the question now is whether the current push above 8000 points will hold, potentially setting the stage for a retest of the previous peak at 8121 points.
Technical and Macro Conditions Favorable
Recent technical indicators suggest that this push may succeed where previous attempts have faltered. The sharp reversal from below 7500 earlier this month, accompanied by a bullish engulfing candle, signals increased buying interest. Additionally, the MACD has generated a bullish signal, and the RSI (14) has broken its downtrend. However, the lack of substantial trading volumes over the past two weeks remains a concern.
From a macroeconomic perspective, with no major U.S. economic data scheduled until Thursday, the narrative of a soft landing for the global economy may gain traction, potentially providing additional support for the ASX 200 SPI futures.
Concerns Over Bank Valuations
Despite favorable technical and macro conditions, there are concerns about the valuations of Australian banks, which make up a significant portion of the ASX 200 index. According to Morgan Stanley, the forward price-to-earnings ratios for the banking sector are at record highs, raising questions about the sustainability of further gains given these elevated valuations.
Iron Ore Prices as a Key Driver
To achieve a sustained upward move for the ASX 200 SPI futures, support from other sectors, particularly materials, may be necessary. Given that materials are the second-largest weighting in the ASX 200, the performance of iron ore futures is critical.
Iron ore prices, which recently fell to multi-year lows due to weak profit margins in Chinese steel mills, have shown signs of recovery. Over the past week, prices have climbed back above the April low of $95.40 and are trading just below $100. If today’s candle forms a bullish engulfing pattern, it could signal a potential rise above $100, supported by bullish signals from the MACD and RSI (14).
For a sustained push higher in both iron ore futures and ASX 200 SPI futures, iron ore prices need to break above the 50-day moving average and the downtrend that has persisted since May. A successful breach of the $105.75 level would break the sequence of lower cycle highs and improve the technical outlook for medium-term gains.
