ASX 200 Index - potential for bullish reversal

ASX 200 Index - potential for bullish reversal

Hi everyone,

The Australian stock market has found a Fibonacci cluster level which could represent the end of the end of the current downtrend.

Before, I get on to looking at this Fib cluster level on the daily chart though, I thought it may be useful to review the weekly chart to get some insight into the bigger picture context.

The difficulty with this chart from the point of view of a big picture buyer is its failure to convincingly clear the Feb high of 4944 and the subsequent retreat back below that peak. This leaves the possibility that we are in a trading range with the last 2 peaks on the weekly chart acting as resistance. Buyers looking to operate only in more obviously impulsive trends may choose to look elsewhere.

However, because the S&P/ASX 200 is a bellwether Australian market it often pays to keep an eye on potential index set ups even if they don't tick every box. Often these sort of set ups in the index can alert a trader to the possibility of interesting set ups in individual stocks or in related risk markets.

BPT and WTF are 2 individual stocks potentially making ending an ABC correction against impulsive uptrends today.  This is the same set up as the index but both these charts look in more impulsive situations than the index itself. If nothing else, the daily ASX chart below lends potentially supports these set ups. I'll post charts on these 2 stocks in a separate blog.

The recent downtrend in the daily ASX 200 index has formed a 3 swing or ABC formation. Friday's low will make a trough at a Fibonacci cluster level.

This cluster includes a 50% retracement of O/X and projects that the b/c swing will be 127% of x/a and 161.8% of a/b

A close above Friday's high would represent a buy set up looking for the end of the correction.

Followers of a dual time frame strategy would want to see the weekly stochastic oscillator trending up at the time of entry to confirm the set up. As you can see on the weekly chart above, this is a line ball situation at the moment. A strong finish this afternoon would be needed to push the %K stochastic above its %D moving average