Sell Australia 200 on Failure

At an index Price to Earnings ratio between 19 and 20 times, I’m looking for sell signals in the Australia 200 index. The failure at resistance this morning has tipped me in:

20130411 xjo 1d

My colleague, Ric Spooner, regularly writes about the usefulness of using charts of different time frames to find better trade signals. While he and I have different trading styles (naturally) this is a good example of the higher time frame (daily) chart guiding the overall direction (despite starting with a fundamental view) and the lower time frame (4 hour) chart defining the entry:

20130411 xjo 4h

The combination of the failure at resistance and an RSI reading over 70% is the technical signal I’m looking for to allow me to trade my fundamental view:

20130411 tkt

Note the Profit to Loss ratio of the trade 68┬áto 15, or better than 4 to 1 – this fits my trading plan.

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Market, Shares, Stocks, Trading and tagged , , , , . Bookmark the permalink.

7 Responses to Sell Australia 200 on Failure

  1. Sunil Malhotra says:

    Hi Michael, would you leave the trade as carry trade? or would you expect to hit target before the market closes in Aus?

  2. Elliott says:

    Hi Michael, is the P/E ratio 19-20? I’ve read recently that it’s only around 15.

    • Hi Elliott – according to Bloomberg this morning, the trailing P/E’s for markets are:

      Australia 200 – 20.9 x
      US S&P 500 – 15.7 x
      US 30 DJIA – 14.5 x
      Germany DAX – 14.6 x

      Factoring earnings growth for each index reduces the forward PE slightly, but doesn’t have much of an overall impact on the relative valuations

  3. Ben says:

    Hi Michael, would you mind explain the reasoning behind your Take Profit taken please. Thanks.

  4. Ben says:

    Sorry, meant Take Profit target.

    • Hi Ben – for me, this is a short term trade. Although my view is that the market is likely to fall to somewhere around 4670 – 4720, it’s unlikely to go in a straight line. I see a lot of congestion around 4925, and have banked the profit while waiting for another shorting opportunity.

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