ASX200 closed below 6000 and currently under extreme pressure to hold within the ending diagonal pattern.

Overnight, the S&P500 and Nasdaq continue to break new highs while the XJO is struggling to breach and close above 6200.

European equity markets have started to sell off and with bearish momentum from yesterday’s session, a daily close below the pattern could suggest there is more to come for the ASX200.

Key Points:

  • Price holding below the 200 EMA
  • Price holding below the 50 EMA
  • XJO fails at the 61.8% of Covid range on multiple occasions.
  • 6000 level breached and closed below
  • RSI crosses below 50 which has only happened twice since May

Key Levels:

Support – 5800, 5650, 5400

Resistance – 6000, 6200, 200 EMA, 50 EMA

Entry Zone:

Optimal entry provides the greatest reward to risk ratio while supporting entry is a zone for reversal signals.

 There are two IF scenarios that may help your decision in going long or short the XJO.

Scenario 1: IF price closes below the ending diagonal, the short is in play.

Optimal Entry – 5950 – Retest of the trend line break.

Supporting Entry – 5900

 

Scenario 2: IF price holds above the ending diagonal, the long is in play and XJO may follow the momentum of the SPX and Nasdaq. Waiting for a close above 6000 would be desirable.

Optimal Entry – 6010

Supporting Entry – 6050

The Risk:

As traders, it is your job to mitigate the risk and only trade structures that provide high probability and great reward to risk ratios.

If you are not comfortable with defined exit levels, experiment with Moving Averages to help set solid exit rules to protect your capital.

Scenario 1:

Price breaks above level 6000 and 50 EMA – this would suggest the structure is not in our favour and would be wise to reduce exposure or close the trade until a solid signal gives us reasons to re-enter.

 

Scenario 2:

Price breaks below level 5900 – this would suggest the structure is not in our favour and would be wise to reduce exposure or close the trade until a solid signal gives us reasons to re-enter.

 

 Scenario 1:

Reward / Reward Targets:

Optimal Entry 5950– Target 1 5650 = 5x Reward to Risk

Supporting Entry 5900 – Target 1 5650= 2x Reward to Risk

 

Scenario 2:

Reward / Reward Targets:

Optimal Entry 6010– Target 1 6200 = 2.7x Reward to Risk

Optimal Entry 6010– Target 2 6300 = 4x Reward to Risk

Supporting Entry 6050 – Target 1 6200= 1.5x Reward to Risk

Supporting Entry 6050 – Target 1 6300= 2x Reward to Risk