It remains to be seen whether the current correction in the Australian stock market will be turn out just to be a shallow drift or if it will develop into something more serious.
If we are to see a more substantial sell off, it seems likely that the banks which led the charge to the upside will play a key role on the downside. So how the ANZ chart responds to current support levels could be a useful guide to the whole index as well as being a potential trade set up.
ANZ Chart Weekly
The big picture of the weekly chart shows that ANZ is still quite a way above its long term trend line and 40 week (200 day) moving average. The 200 day moving average is currently around $29.87 so even a pull back to the longer term trend carries decent downside potential.
The slow stochastic is also trending down sharply from the overbought level suggesting potential for a deeper correction.
ANZ chart daily
At this stage, the recent down trend in ANZ looks as though it may be taking a breather in the form of a minor triangle pattern. This may create a couple of possibilities for traders with a bearish bias.
- The first might be to sell on a clear break below the support from current levels
- The second might be to sell if price rallies from here but rejects the triangle resistance line for a 3rd time, making another minor trend peak at the line or close to it
Of course there will not be any sell set up from this triangle if price just rallies from here and breaks convincingly above the resistance. If this does happen we may yet see some different type of sell set up at higher levels if there is a failure below the major peak at $34.06