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Australia 200 - half glass empty

US markets took an optimistic slant on Friday’s weaker than expected Non-Farm Payroll data.  It was seen as perpetuating a “Goldilocks” situation. While economic growth is good enough to provide decent revenue growth, there is minimal pressure on costs with wage growth low and long term interest rates even lower. At the same time, a weakening US Dollar is a boost to many companies including the large tech stocks.

This logic does not apply to our index and the trading week has got off to a pessimistic start. The Australia 200 is down about 0.75% this morning, led lower by bank stocks

Chart resistance

Assuming no dramatic overnight reversal, this morning’s price action will leave the daily candles making lower highs and lower lows. That represents a rejection of the 5790/5810 resistance zone and leaves Australia 200 in a trading range with support at 5670/5680.

I haven’t shown the big picture, weekly chart in this post but the trend remains down.

The trend following strategy would therefore be to sell failures at resistance like the current one with close stops. That creates the possibility of a return to the support but also a potential break down as the long term trend resumes

Another emerging possibility is the formation of a descending triangle (see dashed lines on the chart above). That’s also a potentially bearish scenario which would be confirmed by a break below the triangle. Again, a standard triangle strategy would be to sell this rejectin of the resistance line and/or on any third rejection.


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