ASX 200 toys with bearish breakdown, don’t write of the China A50 yet

ASX 200 futures (SPI 200) technical analysis:

A potential head and shoulders top is forming on the ASX 200 daily chart. This projects a downside target around 7900 if successful, which is a -3.7% drop from current prices. This also lands within the vicinity of the 200-day average.

While this would no doubt wet the appetite of grizzly bears, they should take note of the support levels nearby which could hinder its downside potential. At least initially.

A zone between the September high and October low could provide a cushion of support between the 8130/50 area. Prices already seem hesitant to test the zone, so I suspect buyers may step in to initially support the market if tested.

It will likely then be down to global macro headwinds as to whether we see a break beneath 8130 to confirm a head and shoulders top. In which case, bears may want to see how prices react around the 8100 and 800 handles to gauge just how bears a H&S top is really is.

The 4-hour chart shows a solid breakout from a bear flag, which projects a target around a weekly value area high (VAH). Keep in mind the 8130/50 support zone nearby, but as bearish momentum out of the flag was strong, we could see prices dip beneath it.

But unless we get a global risk-off trigger, I suspect downside is limited and will also be on guard for a false break of 8100 and subsequent rebound.

China A50 futures technical analysis:

A quick update with nothing to drastic. A bearish engulfing candle formed yesterday, but I see this as a liquidity sweep before its anticipated rally higher. Yesterday’s selloff does little to shake off the bullishness of the engulfing candle from the 18^th October, which rallied from the 13k area. And given the fall from the October high appears to be corrective, relative to the 48% rally from the September low, I continues to suspect the next directional move for the China A50 could be higher. And yesterday’s selloff could be a gift for bulls seeking to improve their reward to risk ratio.

As before, a conservative upside target pf 14,000 to 14,220 remains in place. But it could move higher if China’s data improves for another round of stimulus is released that satisfies investors.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge