05/08/2026
(ASX: XJO) | S&P/ASX 200 Rally Continues, But Short-Term Risk Is Rising
The S&P/ASX 200 continued its strong advance today, breaking above the recent consolidation and pushing towards the 9,200 resistance zone, a level that has acted as the major ceiling since February. While the longer-term technical outlook remains constructive, the market is now entering overbought territory, suggesting investors should become increasingly selective rather than aggressively chasing prices higher.
From a structural perspective, the correction earlier this year appears to have fully run its course. The decline from 9,200 into the 8,050–8,100 lows formed a classic descending wedge, a pattern that frequently signals exhaustion in selling pressure. The subsequent breakout during June confirmed that institutional buyers had regained control, with the index recovering almost 14% from its lows.
The latest breakout above the previous trading range is another positive development. Price is now trading comfortably above both the 40-day moving average and the 250-day moving average, confirming that the medium and long-term trend remain firmly bullish.
However, our attention is now shifting away from trend direction and towards risk management.
The momentum indicator is currently sitting at approximately 75, placing the market firmly in overbought territory. Historically, every time the ASX 200 has reached similar momentum readings over the past 12 months, the market has struggled to sustain its advance without first experiencing a period of consolidation or a healthy pullback.
Your chart clearly highlights this behaviour:
The previous overbought reading near 74–75 preceded the sharp February correction.
Another overbought signal during March was followed by renewed selling pressure.
More recently, momentum reached elevated levels again before the index paused and consolidated.
Today's reading has once again pushed above the traditional overbought threshold of 70, placing the market in a zone where upside potential becomes increasingly limited while short-term downside risk begins to rise.
This does not necessarily mean the market will immediately reverse. Strong bull markets can remain overbought for extended periods. However, history shows that the ASX 200 has consistently struggled to deliver attractive new entry opportunities once momentum reaches these extreme levels.
> Technical Levels
Support
9,000: First support and an important psychological level.
8,850–8,900: Previous breakout zone that should now act as support.
8,740–8,760: Strong support around the rising 250-day moving average.
> Resistance
9,150–9,200: Major resistance zone and previous all-time high.
A decisive breakout above 9,200, supported by strong volume, would likely signal another leg higher for the broader market.
BGS20 Technical Valuation
Using our BGS20 framework, the ASX 200 is no longer trading at technically discounted levels.
The index is now trading well above its long-term moving averages, with momentum stretched into overbought territory. While we still view the broader trend as bullish, the market has transitioned from Fair Value towards the Fully Valued end of our technical spectrum.
BG Trading View
From a long-term perspective, we remain constructive on Australian equities. The technical damage from the first-half correction has been repaired, and the primary trend continues to point higher.
In the short term, however, caution is warranted.
The combination of:
- overbought momentum,
- price approaching major resistance,
- and the market sitting after a strong multi-week rally,
suggests the risk/reward has deteriorated considerably.
One characteristic we've observed repeatedly is how fragile the ASX 200 can become once momentum reaches these elevated levels. Historically, periods of excessive optimism have often been followed by sharp profit-taking, sometimes occurring with very little warning. While the longer-term uptrend may remain intact, short-term corrections of 3–6% are not uncommon after these overextended moves.
For that reason, BG Trading would avoid chasing the index at current levels. We'd rather wait for one of two higher-probability scenarios:
A healthy pullback into support around 8,900–9,000, where risk/reward improves materially; or
A decisive breakout above 9,200 accompanied by significantly stronger volume, confirming that institutional buyers are prepared to drive the next leg higher.
Patience remains one of the most valuable tools in successful investing. While the long-term outlook remains positive, today's technical picture suggests investors should focus more on capital preservation and disciplined entries rather than buying into an increasingly overextended market.
