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There was quite a bit of talk yesterday about traders shorting the ASX 200 on a break of the 200-day moving average at 5103. It is important to understand that a number of fund managers like to use this gauge to get a sense of the longer-term trend and many will feel more compelled if the index, or perhaps more importantly the stock they are looking to buy or short, is above or below that trend. I ran analysis on how successful you’d be if you went short (assuming starting capital of $100,000) on a daily close below the 200-day moving average and again assuming you close the trade when the index closed back above the 200-day moving average. The results show it is not a profitable strategy at all. Effectively, since the GFC low (March 10 2009), you’d be down 16.2%, having placed 26 trades, with 93% of these resulting in a loss. The average win would be $937, while the average loss would be $3170, and the position would be open for an average of 937 days. To summarise, I recommend using the 200-day as a guide to the longer-term trend, but not as a trigger for a trade.
Glenn Stevens spoke in an interview with the AFR late yesterday, in which he in detailed that he wants to see the AUD/USD closer to A$0.8500. With the RBA Governor talking down the unit at the same time that the market got more aggressive on USD buying ahead of next weeks Fed meeting, the result was AUD/USD weakness, with the pair hitting a low of A$0.8917. The bears will be eyeing support at the August 30 low of A$0.8893 and then A$0.8848 (the year low).
For the AUD bears, AUD/NZD is the gift that keeps on giving. The pair has lost 16% this year which, given the leverage in the forex market, is a sizeable move. The pair is oversold, however whether you are looking at the RSI’s, stochastics or MACD, the low levels are merely reflective of the strong downtrend; thus rallies should be sold. The fact that the swaps market are expecting 121 basis points of hikes over the next year from the RBNZ shows just how aggressive the market feels the RBNZ will be when they do hike.
I highlighted this pair yesterday and the trade seems to be working nicely, and a break of the recent high of 103.38 should bring out more momentum-focused traders. At 15:30 AEDT we get the latest Japanese industrial production and a good number here - the prior read was +0.5% on the month - should help the trade.
Keep an eye on today’s close on the pair, with a close below A$0.9507 (the 61.8% retracement of the A$0.9172 to A$1.0048) likely to bring out momentum-focused traders.