The Trade Balance figures released out of China today was not really what the local market was looking for. The AUD copped it the fastest but from then on the selling in the wider equity market has heated up as well. I was going on about headline turnarounds in a blog post the other day and I think that what we have seen out of China today is an example of a negative headline that the market can really sink the boot into. For the Australian market the idea that the soft landing in China could be in jeopardy is a huge fear for investors. I am not saying that is the case but the reality isn’t relevent when perception is leading the market.
On my travels today though I noticed Aquila Resources which had been in a descending triangle formation for some time and as you can see in the chart below, the selling pressure today was just the thing to knock the price out of the consolidation pattern it had been in:
This has been quite a comprehensive breakout of the pattern today – of course we will have to see where the market closes but the fall of 0.6% on the day for the index so far gives you an idea of how the market is feeling.
I think that a fairly typical stop-loss on this trade would be about $3.08/3.10 – importantly though in fairly high momentum setups like this if the price were to break back within the pattern it would raise serious questions about the viability of the trend.
As is always the case, the trader is looking to measure the height of the pattern (~$0.70) and then extrapolate that out from the point of the breakout to establish the target price. Keep in mind though that this can be set as an initial target and the trader may choose to simply tighten their stop once this level is reached or close part of the position and allow the remainder to continue.