Australian shares remain trapped between strong company fundamentals and global risks. Over the last two months, this dynamic has kept the Australia 200 index in a 200 point range. While the picture may change in August with company reporting, in the short term, opportunities appear to be in trading the range. With futures indicating a fall of around 0.5% today, this fifth down day in a row will have some traders considering buying.
The broad range for the market over the last two months is bounded by 3,990 and 4,190 – the black lines on the chart:
Australia 200 – 4 Hourly
With Europe inching towards a recapitalisation of Spanish banks, and markets already pricing a China GDP growth rate below 7.5%, in my view the global pressures will ease over the next few days. This should lead to a focus on the fundamentals (forward Price/Earnings 13 x, dividend yield 5.1% plus franking) leading to higher share prices.
The repeated “congestion” on the chart gives me clear levels for entry today. The market is likely to open around 4,075, the middle blue line on the chart. If it falls through this level, the next key support is around 4,035. This gives me a two-step approach to today’s market:
If the support around 4,075 holds, I’m watching for the following trade:
BUY 70 Australia 200 at 4078, stop loss 4,068
If the support doesn’t hold (or I’m stopped out of the first trade), I’ll look at:
BUY 100 Australia 200 at 4,037, stop loss at 4,018