Trade idea: ASX 200 technicals

The ASX 200 (quoted with IG as the Australia 200 cash) has broken out of a short-term triangle consolidation pattern and technically targets the 5700 area.

Source: Bloomerg

I am sceptical of blindly buying the index based on this pattern alone, as the fundamental picture simply doesn’t warrant it but there is no denying that price action is looking a little more positive. However, volumes today are terrible, which isn’t surprising given the raft of state public holidays.

Looking at the various oscillators, you can see how the short-term upside in the market has been reflected, however both stochastic momentum and the 14-day RSI (relative strength index) are sitting in the middle of the range and painting a neutral picture. This is also reflected by the sideways movement in the 20-day moving average (currently 5066), suggesting range trading is the best way to go. With this in mind, one could look at utilising Bollinger Bands. These suggests fading rallies through 5179, the top Bollinger band.

The market internals suggest a fairly neutral picture too, with 94% of the market trading between 30 and 70 14-day RSI. 44% of companies are trading above their 50-day moving average, which again is complimentary of this view. The market price-to-earnings ratio is a slight premium to the long-term average at 15.1x.

All-in-all, a number of key indicators are painting a fairly neutral picture that suggests trading a range on the market (5200 to 4950 would be my preference). However, today’s triangle break is a bullish development, although volumes make this a low quality break.

ASX 200 - click to enlarge

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