The ASX200 has opened down and broken critical support

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The ASX has opened under pressure this morning and is currently down a little under 1.0% at 5,531.

We asked Evan Lucas from IG what’s driving the weakness. Lucas said that “the drivers are fairly diverse”.

In the main, P/E’s are still elevated, EPS growth is very low at 1.8%, and profit downgrades are ramping up.

The banks are no longer being supported by dividend yields, price-to-book remains elevated and there are enduring concerns about macroprudential overhangs, meaning that loan growth is under pressure. Investors are also worried about a rise in bad and doubtful debts the housing market cools.

Lucas said this is important because “the big four represent 25% of the ASX.”

Ominously he added that with “growthless revenue expectations and international investors viewing the ASX as a funding source, we are likely to be heading lower still.”

That means that prices were testing a critical technical support zone. It has now broken ASX daily 04062015

Prices had to break down through the level for the technical price outlook for the ASX to turn very negative. Now that it has the selling seems to have accelerated.

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