View yesterday's video - Indices continue to look top heavy
The combined effect of China's second day of China's 'currency manipulation' and earnings season for the ASX, the AUS200 finally broke the June 2012 trendline and could potentially be staring into the abyss.
After having breached both the June '12 trendline and June '15 swing low I suspect the next significant support to be around 5270. With any luck (assuming you are not positioned to the long side) it will get there in a relatively straight line as global markets set themselves for a second day of turmoil surrounding the PBoC intervention.
In traditional technical analysis a break of a trendline projects a target back at the origin of the trendline. If correct this should see the AUS200 back to 3990 but, personally, do not see this method of profit objective as particularly reliable (or tradeable for most retail traders). That said, we could see the AUS200 target the 5,000 level over the coming weeks as long as global fears of deflation and currency wars persist.
For short-term traders 5270 is perfect feasible and I would expect to see a price reaction (bounce fuelled by profit taking) around 5236-70 as this is the 38.2% retracement from the June '12 low and 6020 high. This makes it a suitable candidate for short positions on intraday timeframes but for those seeking a move down towards 5,000 could consider trading D1 whilst we remain below the broken trendline.
AUS200 stares into the abyss
The break below this key level could see significant downside for the AUS200 and, taking current market sentiment into consideration, is not an unlikely scenario