Reviewing the major index charts this morning, the Australia 200 CFD looks one of the more interestingly placed.
The daily chart managed to bounce off the bottom of an established trend channel on Wednesday. However, the longer term chart and the positioning of the US 30 (see Dave Land's Friday post) favour a sell set up in this chart.
One typical approach to strategy would be to sell if price breaks below the channel support on the daily chart.
Shorter term charts may also give a set up for an earlier entry depending on how things pan out at the beginning of the week.
I've begun this post with a look at the weekly chart. A gently sloping uptrend channel has formed since the October low. This is leaning against the direction of the sharp decline from April 2011 which creates a bias in favour of this uptrend being a corrective rally.
The other interesting feature of this chart is the fast stochastic in the box below the chart. This is heading sharply lower after having broken out of the overbought zone above 80.
The strong downward momentum in the weekly stochastic creates a bias in favour of taking sell set ups in the shorter time frame charts and being cautious about buying at this stage.
Turning attention to the daily chart below, you can see that Wednesday's low represented a rejection of the now well established support line from the November lows (dashed black line)
The significance of this line is increased by the 200 day moving average (green line) at about the same level.
Given the momentum of the weekly chart, one thing to watch for may be a failure of the rally off last Wednesday's low followed by a break below the trend line support and the 200 day moving average. This would set up for a decline to test the larger trend channel support (blue line) and potentially beyond.
It's not hard to imagine this sort of set up coinciding with a break out of the rectangle formation on the US 30 that Dave Land discussed on Friday.
The shorter term charts (60 and 30 minute) can also provide set ups for early entry in this type of situation. Here traders with the daily chart on their watch list as a potential trend break may identify a set up for a failure of the rally off Wednesday's low in the shorter term chart. In the right circumstances this can be used to enter early in anticipation of a break below the major support.