Technically, the ASX could fall to 5000

The S&P/ASX 200 index could retest the 5000-point level if negative momentum continues, according to an analysis of technical levels. 

The benchmark was trading about 5180 on Wednesday afternoon, down 0.5 per cent from Tuesday's close. The market has dropped about 4 per cent from late May's highs of 5400, thanks largely to fears Britons could choose to leave the European Union in next week's landmark vote.

"The S&P/ASX 200 index now joins other key global indices – Dow Jones, FTSE, Eurostoxx50, DAX and CAC – which activated technical sell signals on Tuesday night," said QMG technical analyst Angela Mangan.

IG market analyst Angus Nicholson says 5200 and 5000 are the two technical levels that matter most. Photo: Brendon Thorne

The next technical support level was about 100 points lower, she said.

"The minimum downside target for me on the ASX 200 is set at 5075."

Technical analysts use past market data such as share price and volume to identify price patterns and market trends, basing their forecasts mainly on chart movements. Fundamental analysts, on the other hand, look for developments in earnings, dividends, assets, new products, research and the like.

"[Technical analysis] is basically looking at share price action as depicted on a chart," said Ms Mangan. "It's really very much a measure of market momentum and market sentiment, paying no regard to the fundamentals at all. You're looking for particular patterns.

"Every technical analyst will have different criteria. I use very much a trend-reversal indicator."

Ms Mangan said the most recent technical support level for the S&P/ASX 200 was 5300, breached on Tuesday when the market closed at 5203.2.

IG market analyst Angus Nicholson, however, said 5200 and 5000 were the two technical levels that mattered most. If the S&P/ASX 200 closed below 5200 on Wednesday, then 5000 would be the next technical support level.

"The 5200 level is pretty big. The fact that we have moved below it today is pretty concerning. But the key is whether we close above it," said Mr Nicholson.

"If we close below it we could see a fall back to the 5000 level or even the 4900, 4800 level."

Mr Nicholson said 5000, in particular, was a key psychological support level.

"You can see on a graph that a lot of peaks and troughs have moved around that 5000 level. The market either struggles to break below it or struggles to break above it once it's there.

"Within the Australian investor psyche, 5000 has been quite important."