The ASX 200 is approaching record highs, with sector rotation playing a key role in the market's recent rally. The Materials/Technology ratio, which had been recovering from its 2025 lows, has recently rolled over, raising questions about whether the Reserve Bank of Australia (RBA) is nearing the peak of its tightening cycle. Historically, this ratio has preceded turning points in the RBA's cash rate, though the relationship is not definitive.
Correlations between the ASX 200 and global markets have turned positive, with the index showing strong alignment with the S&P 500, Nasdaq, and Nikkei 225 over the past five days. Materials, real estate, and technology sectors are closely linked to the broader index's movements, while financials show a weaker correlation. The Australian dollar remains inversely correlated with the ASX 200, suggesting that the index's strength has coincided with the currency's weakness.
Sector breadth is improving, with bullish patterns emerging in financials, communication services, real estate, and technology. Healthcare remains one of the strongest sectors, while energy continues to lag. The ASX 200's rally has been underway for six weeks, with resistance expected around the 9200-9250 range. The weekly RSI (2) is deeply overbought, indicating a potential pause or pullback before the rally resumes.