S&P ASX 200 index forms inverted H&S, bullish divergence patterns
The S&P ASX 200 index continued its recovery on Wednesday after the Reserve Bank of Australia (RBA) pointed to an April pause of interest rate hikes. The closely-watched Australian index jumped to a high of A$7,033, the highest point in more than a week.
RBA and Federal Reserve actions
The ASX 200 index rose for the second day straight after the RBA published a relatively dovish report on Tuesday. In its minutes, the bank said that it will likely pause its interest rate hikes trend in April in a bid to assess the impact of the past few minutes. In that meeting, the RBA hiked interest rates by 0.25% and pushed them to the highest level in more than a decade.
The ASX 200 index jump on Wednesday coincided with the performance of its American counterparts. On Tuesday, all key indices like the S&P 500 and the small-cap Russell 2000 index jumped, helped by banks. First Republic Bank shares popped by over 40% as the company hired Lazard to assess its strategic alternatives.
As a result, Australia bank stocks were among the top gainers in the ASX 200 index. Commonwealth Bank (CBA) share price jumped by 1.2% while other banks like Westpac and National Bank of Australia rose by over 1%. Small cap mining companies like Besra Gold, Whitebark Energy, and Mincor Resources stocks rose by over 10%.
The next key catalyst for the ASX 200 index will be the Federal Reserve decision scheduled for Wednesday. Economists believe that the Fed will continue hiking interest rates in a bid to continue fighting inflation. It will, nonetheless, take a more measured approach because of the recent bank failures. A recent study warned that as many as 190 American banks could fail in the coming months.
ASX 200 index forecast
ASX chart by TradingView
The ASX 200 index has crawled back in the past few days. A closer look at the four-hour chart shows that it has formed what looks like an inverted head and shoulders pattern. It has also crossed the 25-period exponential moving average (EMA).
At the same time, the MACD and the Relative Strength Index (RSI) have formed a bullish divergence pattern. In most periods, these divergences tend to be positive for assets. Therefore, there is a possibility that the index will have a bullish break-out as buyers target the next key resistance level at A$7,100. The stop-loss of this trade is at A$6,800.
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