ASX 200 News Today: Stocks Recover as Oil Prices Slide, Miners Lead the Rebound

Australian stocks recovered on Tuesday following heavy losses at the beginning of the week. The S&P/ASX 200 gained 1.09% to close at 8,692.60 as investors returned to the market after an intense fall in the price of oil. Monday’s sell-off had erased significant value from the market and raised fears that rising energy prices could see inflation rise in Australia. The fall in crude prices helped to quell those fears and investors were encouraged to purchase mining and banking stocks.

Falling Oil Prices Help the Market Stabilize

The increase in the ASX 200 was mainly due to decline of crude oil prices. Brent crude, which had spiked above $119 a barrel on Monday, plunged and lost around 7% during Tuesday’s trading. This abrupt decline helped to take away immediate fears of inflation and led to relief rally in equity markets across the board.

The recovery was also part of larger regional recovery. MSCI’s Asia-Pacific index excluding Japan rose by about 3.3% as a result of improved risk appetite in entire region. However investors are cautious as market sentiment remains very fluid because traders react to the developments in global politics and the Middle East conflict. Investors are paying attention to statements from US President Donald Trump and other geopolitical developments that might cause swift shift in global markets.

Miners and Banks Lead the Recovery

Materials and financial stocks were the leaders in the recovery rally in Australia. The mining sub-index increased by about 2% following five consecutive days of losses. Major mining companies were in the mix as well, with BHP Group up some 2.3% and Rio Tinto up about 0.6%. These companies tend to benefit when global growth expectations are stable and commodity demand is improving.

Financial stocks also made good gains. The sector increased around 1.3% which was its best performance in the last three weeks. Other sectors came on board with the recovery. Gold stocks increased approximately 2.05%, technology stocks rose approximately 1.94% and healthcare stocks rose approximately 1.76%. Consumer discretionary, industrial and real estate investment trusts also moved higher, indicating widespread participation in the market recovery.

On the other hand, energy stocks were down from the strong performance the day before. The energy sector dropped about 2.9% with Woodside Energy down about 3.8%. This move was due to geopolitical “fear premium” in oil prices which started to disappear. Consumer staples stocks have also given up a little ground, falling around 0.31% on the session.

The chart below shows that the ASX 200 Information Technology (XIJ) has been showing the worst performance during the last year with around 27% loss. However, the All Ordinaries Gold Index (XGD) and ASX 200 Materials Index (XMJ) are showing positive performance with 146% and 36% of gains. Therefore, the corrections in these sectors were intense. When these sectors start rebounding, they will likely lead the rally in ASX 200.

ASX 200 Rebounds From Key Support but Faces Resistance Ahead

From a technical standpoint, the ASX 200 is still in a volatile consolidation phase following the sharp decline we have seen on Monday. Monday’s sell-off brought the index lower and brought some uncertainty to the short-term trend. However, Tuesday’s recovery indicates that buyers are still active when prices are near important support areas.

The chart below shows strong support around the 8,400 zone, as discussed in the previous article. The rebound on Tuesday developed exactly from this support zone. However, despite this rebound, the ASX200 failed to break above the 200 SMA at 8,775 and closed the daily candle below 8700, which was strong resistance.

Therefore, the possibility of the index consolidating below the 200 SMA is higher. A break below 8,400 will indicate further downside towards 7,800 as the next significant support. However, a recovery above the 9,000 level will indicate further upside towards new record levels.

What to Expect from the ASX 200 on Wednesday

For Wednesday, investors will pay close attention to whether the ASX 200 will be able to extend recovery seen on Tuesday or whether it will be trapped below 200-day SMA resistance. The index must move above 8700-8775 to confirm bullish momentum. If buyers succeed in pushing market higher, the index may try to move towards 9000. However, failure to hold above the recent rebound zone may continue to put market under pressure and result in a test of 8,400. The geopolitical headlines are likely to continue to be the driving force in market sentiment in the next trading session.