ASX 200 preparing for a breakout

Price at time of writing – 5345.

My last update on Australia’s share index was in November, just after the index had completed its rise to my trading target band of 5403-5425.

That target band formed due to an alignment of four Gann-theory percentages, and was fulfilled in late October. Since then I have been waiting for a lower-risk entry level to emerge.

After hitting the target/resistance band referred to above, the ASX 200 duly corrected in December then rallied somewhat before correcting again in January. Recently, the index has been flirting with this resistance band for a third time. The profile appears more positive this time around however, with no sign of the intimidation that was evident on the first two occasions. Sideways trading around resistance levels usually suggests the price is priming for a fresh breakout.

My earlier updates on the ASX 200 had identified an ultimate target band as high as 6175-6242. This projection still remains valid. First, however, we need to identify the trigger that will activate such a powerful advance. As the chart highlights, a break above 5425 puts the index into clear waters; the trigger to buy the index aggressively therefore becomes such a break.

Recommendation: neutral. Buy the index on any break above 5425. The target then becomes 6175.

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