The Australian 200 Index has rallied hard today. This appears to me as a selling opportunity. After an overnight rally in risk assets generally, and industrial metals in
particular, the recent falls have reversed. While some traders believe the “risk off” selling sparked by debt fears in the US and Europe and inflation fears in China and other emerging economies is over, there is market evidence to suggest otherwise.
On April 7th, I wrote that I believed The Aussie 200 was set for a fall. The market then rallied another 60 points, before then falling 190 points. While fundamental analysis is not an exact science, especially when it comes to day trading, I still believe the thrust of the reasoning applies. It’s available for review here: http://blog.cmcmarkets.com.au/2011/04/07/aussie-200-set-for-a-fall/
The persistent rallies in gold and silver, falling bond yields and a an increase in the “skew” of volatility markets (meaning the cost of insuring share portfolios has risen) indicate there are still many market participants moving away from risk. Traders who accept this scenario may use today’s rally to enter on a Fibonacci based assessment of risk to reward.
Aussie 200 – Hourly Chart
Of course, traders will use their own strategies and signals to enter trades. However, for me there is a very useful potential trade strategy based around the Fibonacci retracement levels, illustrated on the hourly chart above:
SELL Aussie 200 at current levels (4845). Stop loss above the 23.6% Fibonacci level at 4860, first profit target the 38.2% retracement at 4788, second profit target the 50% retracement at 4725.