S&P/ASX 200 Fundamental Analysis – September 16, 2016 Forecast

The S&P/ASX 200 Index is expected to follow the lead of the strong U.S. stock market and open up higher on Friday. The early call is for an opening about 0.20% higher. On Thursday, the index closed at 5239.90, up 12.20 or +0.23%.

The price action suggests the market may have found support near the July lows. On Thursday, the index attracted buyers at 5192.20. Despite the strong finish, the index is still expected to close lower for the week. Last week’s close at 5339.20 is just not a valid target given the normal daily volatility.

The catalyst behind the rally is greater demand for higher risk assets. Support for a rally today is likely to be generated by a strong performance in U.S. technology stocks and a rebound rally in crude oil. The news that Treasuries retreated with the dollar amid data showing the American economy is on uneven footing, helping to underpin higher-yielding assets.

There are no major economic reports until the Bank of Japan and the U.S. Federal Reserve release their monetary policy statements on September 21. However, the reports from the U.S. on Thursday indicated a sputtering economy. Weak U.S. retail sales and manufacturing activity led investors to reduce the odds of a Fed rate hike in September. This was the main reason for the increased demand for higher-yielding stocks.

FORECAST

Look for a higher opening on Friday as investors piggy-back the strong rally in the U.S. markets. Buying pressure is expected to increase if U.S. stocks, particularly in the technology sector, continue to rise. The expected rally could continue to rise if crude oil catches a bid. This sector has been largely responsible for weakness in the Dow and the S&P recently. If crude oil prices strengthen then look for the energy sector to rise along with it.

Most of the strength today in the S&P/ASX 200 is expected to come from the “Big 4 Banks” and the energy sector.