ASX 200 Slides as Oil, Yields and Rate Risks Hit Sentiment

The ASX 200 suffered its worst week in six months with a 2.9% decline as surging oil prices, rising global bond yields and renewed RBA and Fed rate-hike expectations drove a broad risk-off move. With sector correlations surging and momentum stretched to the downside, traders now face a balance between deeper downside risks and the potential for a near-term rebound.

ASX 200 Slides as Oil, Yields and Rate Risks Hit Sentiment

The ASX suffered its worst week in six months with a 2.9% decline. Surging oil prices amid the Middle East escalation, rising global bond yields and renewed bets that the RBA and Fed are on track to hike rates this month sent the ASX to a nine-week low. It now seems likely to snap its five-month winning streak, despite being only halfway through September.

And despite the volatility of the past year, the ASX is now down 1.6% year to date. These could be the hallmarks of a grinding top — as the saying goes, “tops are a process, bottoms are an event”. The bearish RSI divergence on the monthly chart heading into the March high adds weight to the case for a potential top.

Source: TradingView

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ASX 200 Sector Correlations Surge as Risk-Off Mood Deepens

You can tell a broader macro play is underway because correlations between ASX sectors and the index have been slammed into overdrive. Most sectors now have 10- and 20-day correlations above 0.8, while financials and materials — which together account for more than half of the ASX 200 — have 10-day correlations above 0.8. Such tightly clustered correlations suggest macro forces are overwhelming stock- and sector-specific drivers, which is typical of a broad risk-off move.

Source: LSEG

How Deep Could the ASX 200 Pullback Become?

The question now, of course, is how much deeper this pullback could become. Referring back to the monthly chart, a move down to 8,400 would still leave the ASX confined within the volatile range of the past year, so such a selloff may not be particularly extreme. That said, I would expect solid support above 8,000 unless we receive the green light for a broader global stock market selloff.

But with prices falling so aggressively last week, bears may want to tread carefully in the early stages of this week to avoid getting caught short in a market that may need to snap back higher over the near term.

ASX 200 Options Levels: 8700 Support, 8800 Resistance

With the ASX 200 around 8,740, the options map points to 8,725–8,700 as the main support zone, with particularly heavy put positioning at 8,700. A clean break below there brings 8,650 into focus as the stronger deeper support level.

On the upside, 8,775–8,800 is the first resistance and pivot zone. Above that, 8,825 is the cleaner resistance level, while 8,900 becomes the next major pivot if the rebound extends.

Source: ASX, TradingView 

SPI 200 Bears Press Their Advantage as Oversold Risks Build

SPI 200 volume and open interest (right chart) increased on Thursday and Friday, showing bears were actively backing the selloff rather than the move simply reflecting long liquidation. However, with prices still holding above the 8,691 swing low, there is a risk of near-term short covering unless bears can force a break lower soon.

Either way, bears may prefer to fade into rallies, with the 8,656.2 low a likely downside target this week. But with the daily RSI (2) extremely oversold, my guess is that the July low will provide initial support.