In overnight trading the Australia 200 index touched 4,356, just shy of a key level. This presents traders with three clearly defined short term trades.

The Australian share market has underperformed the recovering US market over the last 3 months. Unusually, yesterday the index posted gains despite falls in other Asian markets. Analysts are waiting for the Australia 200 to break through the top of the 8 month trading range at 4,365. I posted on the drivers of a break out on 14 March – you can read it here:

http://blog.cmcmarkets.com.au/2012/03/14/australian-200-approaches-break-out/

My fundamental view remains that the market will break through – however, the wait is frustrating for investors. The situation is different for traders, with clearly defined trading levels. Here’s the daily chart from the CMC Tracker platform:

Given the repeated failures as the index approached the break out level in the past, I’ll stay away from predicting the market and let the price action tell all. As the chart shows, last night the market pulled back to a key intra-range level at 4,318. This rejection of the high at 4,356 gives me the following short term trade:

SELL Australia 200 at 4,316, stop loss above 4,324, targeting 4,245.

The potential risk / reward ratio on this trade is exceptional, at greater than 8:1.

Of course, if the market repeats yesterday’s stunning solo performance, and trades up through 4,365, I’ll be going long for a swing trade. For bullish traders, the recent price action also suggests a clearly defined trade for today:

BUY Australia 200 at 4,322, stop loss 4,314. Take half profit above 4,350.