Matt Simpson, CFTe, MSTA
CityIndex
With Iron ore continuing to print fresh 5-year lows and the Australian Dollar under heavy selling pressure then AUS200 could easily be dragged down with it.
The AUS200 suffered a 600 point decline in April 2013, only to quickly reverse and break to new multi-year highs. The current decline has shed 317 points from the 2014 highs and teeters on the edge of 5366 support. This is a critical level to monitor as it has been successfully tested and respected 5 times this year, which would suggests if it does break the downside could be more significant.
At current levels we are now below the 200 day moving average and the momentum is clearly bearish on the daily charts, to favour a break below the 5366 level sooner than later.
The fact that both the Australian Dollar and Iron ore prices remain under heavy selling pressure also makes a downside break on AUS200 a very likely scenario. Bearish targets include 5302, 5262 and 5200.
Potential methods to trade this are to set sell-stop orders below 5366. These wanting to achieve a higher reward/risk ratio (but also increasing the risk taken from the trade) could look to enter before the anticipated downside breakout. The obvious risk here being that price continues to respect 2366 support and see a bullish move similar to Dec '13 and Jan '14, where both rallies quickly gained over 360 points and 450 points respectively.
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