The investor’s edge: ASX 200 tactically bullish after a month-and-a-quarter to forget

The ASX 200: a look at September's performance

A tough September

September has once again lived up to its reputation as the worst month of the year for the ASX 200, currently down 3.68% month to date (MTD) with one full trading session left to go.

Mixed performance in 2023

The ASX 200's disappointing performance in September follows a losing month in August (-1.42%), which has conspired to see the ASX 200 trading flat on the year (excluding dividends). The Australian bourse has returned a meager 3.5% in 2023 if dividends are included.

A return that seems incomprehensible after the ASX 200 leaped from the starting blocks, adding a rapid-fire 6.22% in January on optimism around the China reopening and hopes that the headwinds of rising interest rates and inflation encountered in 2022 were in the rearview mirror: most of which we now know were unfounded.

ASX 200 vs. global indices

The reopening in China faded soon after, and still, three-quarters of the way through the year remains elusive. Interest rates, particularly at the long end of the curve, have raced higher both domestically and abroad. The jury remains out as to whether central banks have tightened policy enough to bottle the inflation genie.

Optimists may point out that the ASX 200 has outperformed in September relative to US indices, given that both the S&P 500 and the NASDAQ are down over 5% MTD. However, that would overlook the fact that an index with a similar makeup to Australia’s, the FTSE 100, with its large weighting of miners, financial, and energy stocks, is on track for a positive month and a positive quarter.

ASX 200 sector analysis

At a sector level, all 11 ASX sectors appear poised to close lower for the month.

• The interest-sensitive real estate and IT sectors have been the main casualties, currently down by -6.57% and -5.46% MTD respectively
• The healthcare sector, representing 10.06% of the index, has declined by -4.58% in September
• The materials sector, accounting for a substantial 23.8% weighting within the index, has fallen by -3.16% in September
• The financial sector, comprising 27.1% of the index, is down by -0.37% in September
• The energy sector, making up 6.3% of the index, has been the best-performing sector this month. However, despite the price of crude oil surging by over 13% in September, the ASX 200 energy sector is down by -0.17% MTD.

ASX sector breakdown chart

ASX technical analysis

The ASX 200 has spent the bulk of this year trading sideways in a range, above year-to-date lows at 6900 and below year-to-date high at 7567, struck in early February. The sideways price action in 2023 appears corrective and follows an impulsive five-wave rally (Elliott Wave) from the October 2022 double low at 6411 to the 7567 high of February this year.

With the ASX 200 trading towards the bottom of its range, combined with the S&P 500 cash reaching our 4250/00 pullback target, we turn tactically bullish on the ASX 200, looking for a return to range (7440) highs and possibly year-to-date highs (7567).

Stops on the bullish view would be if the ASX 200 were to see a sustained close below 6900, aware that should support at 6900 give way, the risks are for a test of 6750 before the 2022 lows at 6400.

ASX 200 daily chart

• _{TradingView: the figures stated are as of September 28, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}