ASX 200 on the Verge of a Pullback?

• ASX 200 is a bit stretched.
• Commodities continue to have a major influence on stocks.
• Interest rates continue to be influential.

The ASX 200 initially tried to rally on Monday but gave back gains as we had broken above the AU$8000 level. This is a market that still has the air of strength, but at the same time you would have to be cognizant of the fact that the market may be slightly overextended.

It’s probably worth noting that recently the market had broken above the AU$7900 level, an area that was the top of the massive ascending triangle area technical traders will look at this as a major break out, and any pullback at this point in time would more likely than not have people thinking that it is a “breakout, pullback, and continuation play.”

This is very common for technical traders to look at a pullback to a previous consolidation area as an entry point, so it all ties together quite nicely. The 50-Day EMA is currently at the AU$7800 level and is curling higher, so one would assume that it is probably only a matter of time before the indicator reaches the previously crucial AU$7900 level.

Help from Commodities

Keep in mind that the commodity markets have a major influence on the way Australian assets trade, including the ASX 200, currencies, and of course equities. Currently, the copper market is sitting just below the crucial $4.60 level and is pulling back just a bit to reach the 50-Day EMA. That being said, we are also in the midst of forming a bullish flag so a break above the $4.6082 level would be a breach of resistance, and it more likely than not would have “momentum traders” coming back into the picture. This could tie in quite nicely with a little bit of a pullback in the ASX 200, only to see both markets turned to the upside.

Not to be outdone, gold is also a market that a lot of traders will be paying close attention to. Gold markets currently look as if they are trying to do everything they can to break out to the upside, and if gold were to break above the $2450 level, that could have people rushing into Australian miners. This would have people looking at BHP, Rio Tinto, and all the usual suspects. Alternatively, if gold struggles a little bit, which would make a certain amount of sense considering that we are pressuring a major resistance barrier, then it could also weigh upon the ASX 200, at least temporarily.

Interest Rates

The Australian 10 year yield is hovering around the 4.30 level and has seen a little bit of support during the early hours on Monday. If that does continue to be the case and yields rise again, that could work against stocks in general in the short term. Recently, the 10 year yield has been bouncing around between 4.10%, and 4.50%. At this point, it certainly looks as if there is at least enough support to have people looking to come in and sell bonds and have them offering a decent return. In fact, it’s probably worth noting that there is a positive “real yield” in Australia, so that does make owning at least some bonds attractive for institutional traders.

Overseas, the Federal Reserve will also have its influence as interest rates coming out of the United States will have a major influence on commodities. Because of this, it’s very likely that the ASX 200 will continue to be noisy, but one would have to think a lot of traders looking at this recent breakout and potential pullback as a potential opportunity.

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