Originally published by IG Markets
The economic week ahead
This week’s economic highlights
Aussie 200 index view
Aussie 200 weekly
A week of reckoning for the Aussie 200 last week following the strong breakout a retest has occurred. A close over last weeks high (5833) is required to provide a continuation signal. A close below 5725 could signal reversal. A breakdown at this current level could see 5600 tested as support. Short tern 5750 resistance. The marks the outside periods a strong reversal signal.
Last weeks comments: Last week saw the index break through resistance at 5725 with a strong range. Look for support at the prior resistance level of 5725. A weekly close below this level would signal reversal.
Index view
S&P 500 weekly
The S&P continues to develop a primary up trend following the support of 2220 not being breached.
Currently, this short-term support of 2220 is clearly the inflection point on any price weakness.
A further test of 2300 is expected in this consolidation area. US Q4 earnings reporting could provide the catalyst for further gains.
Overall, a good weekly start to the US indices for 2017.
The FTSE 100 rising on GBPUSD weakness shows the clear breakout over 7135, this is a blue sky move.
Any weakness from profit taking should see the 7135 level hold.
The relative strength indicator only suggests prices are strong but not over bought.
As yet there is no sell signal.
Short interest
Stocks are shorted for many reasons, including but not limited to “hedging” against a same sector equity long position. Or an outright belief the stock price will fall in the near future.
Some observations
Myer Holdings Ltd (AX:MYR) has moved from a short interest of 25% last week down to 16.25%.
This week:
Aconex Ltd (AX:ACX) remains at 16.8% now the highest shorted stock.
TFS Corporation Ltd (AX:TFC) continues to have increases in its short position at 11.9%
It should be noted the resource sector currently has very small amounts of stock sold short:
• BHP Billiton Ltd (AX:BHP) less than 2%
• Fortescue Metals Group Ltd (AX:FMG) short interest has fallen from 9% to 4.7% to 3.1% currently
Trade idea
Long ORG
The Origin Energy Ltd (AX:ORG) weekly chart shows the breakout point at $6.85 following a short ( less than 5 periods) consolidation. The ascending pattern with 3 spike lows set up the emergence of a new trend.
Stop loss is set at $6.65.
See position sizing guidelines in this note. Also check the note on OP’s Outside periods.
Long WPL
Weekly chart of Woodside Petroleum Ltd (AX:WPL) has closing price support at $24.80 with a series of higher lows and 2 outside periods in late 2016.
The short term resistance at $32.25 is the potential breakout point.
This is the type of price action that would suit “stop buy” type orders. The primary trend is UP with 2 short term scenarios available.
1. An immediate break above $32.25. (stop buy type order)
2. A retest of $29.75 levels offering a better entry.
Stop loss is set at $29.60
See position sizing guidelines in this note.
Long WES
The daily chart of Wesfarmers Ltd (AX:WES) has an unfilled price gap at $42.90 to $43.70 this can provide a trading opportunity for the short term trader. Gaps are often filled (95% of the time).
Friday provided a buy “hammer” with immediate follow through.
For the short term resistance could be expected at $42.90 with a price target of the upper side of the gap at $43.70
Stop loss is set at $41.18
See position sizing guidelines in this note.
Long IPL
The weekly chart of Incitec Pivot Ltd (AX:IPL) shows the breakout over $3.52 from the rounding base, and the short retest 3 weeks ago. The volume study shows a low volume week on this retest indicating a lack of committed sellers. Last weeks volume is higher on a flat outcome for the week, indicating accumulation.
Stop loss is set at $3.48
See position sizing guidelines in this note.
Long gold trade could be short lived
Gold remains in a primary down trend. The current move higher is part of the chart structure of the down trend with no evidence of anything other than a retest of the $1200 breakdown level underway.
This week will show if gold can move solidly over $1200oz.
Gold stocks are mirroring the gold chart moves and will be susceptible to reversal on the underlying commodity.
See position sizing guidelines in this note.
The technical setups
Pivot point
Outside range
A price range larger than the previous range often indicates a market turning point. The outside period can mark the market turning point at or within 3 bars ( 93%).
Position size and management guidelines
Position size by account size
Building a trading system on simple rules requires a money management process. As an example, should 1% of the account size be risked on an individual position, the position size can be calculated. Here is the guideline, this allows the trader to build an R- (risk) based return.
The distance-to-stop is the dollar amount risk. Dividing the distance to stop into 1% of the account size gives the position size. The lower stop displayed will have a smaller position size.
Profit taken on the trade can then be measured against the risk. For example: The distance-to-stop is 20 cents and the account size is 10,000. Using 1% ($100) of the account, divide the $100 by 20c. This gives a position size of 500 units. The lower stop loss is 50 cents away. Using the same methodology of a 1% of account risk, the position size is 200 units.