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Day one: our Australia 200 trade idea

Potential trade idea: buy Australia 200 cash at 5370, with a stop loss at 5330, and a potential target of 5440.

The Australian market is flying at the moment, with the cash market rallying 6% in the last seven trading session. As you can see from the daily chart, the index has broken a number of trends, however the more significant one was on Friday, where it broken the November downtrend.

The MACD is above zero and continues to pull away from the signal line. Clearly the trend is higher here and thus pullbacks are likely to be bought.

The ten-day RSI is at elevated levels; however this is clearly a sign of the strength behind the price action and on current newsflow favours being long than short.

Global markets also remain positive, with the S&P 500 within striking distance from a new all-time high. A failure to break this high this week could be telling and could result in downside for the Australian market. The correlation the ASX 200 has with the China CSI 300 is also increasing, so I will be watching this as well (IG offer clients the ability to trade the China A50 index, which is the largest fifty Chinese companies, but the futures trade on the Singapore exchange).

While global leads will always play a part, earnings will potentially get the greater focus. Scheduled to report this week are the likes on ANN, BHP, MND, FMG, SUN, WES, WPL, LEI and STO.

So far we’ve seen around 30% of those scheduled to report 1H numbers do so, and 47% have beaten expectations on the EPS line, while 51% have beaten on revenue. What’s strong though is the 21.2% aggregate earnings growth on the year. 78% of companies have increased their dividend.

There is fairly limited data in Australia this week, so I am focusing on earnings and the momentum in the market

Australia 200
IG Charts

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