Looking across the top 50 stocks on the ASX, we have a higher number of stocks that are heading south, and of those that are hitting new short-term highs, they are either on resistance or showing bearish divergence.

You can also see the bearish divergence on the AU200 chart on the stochastic. Divergence is always a powerful indicator at picking tops or bottoms, but must be used with caution.

Therefore, this setup is to take advantage of what appears to be investors unable to find 'value' in buying new stocks at the relative highs we are seeing right now.

As you can imagine, the resistance shown on the chart could be broken, leading to a breakout opportunity and a stop loss for this trade.

The Risk Reward on this trade is worth looking at, and given it is a mean reversion style strategy, trade with a smaller position size to what you might usually trade.

AU200 Overbought & on resistance - Potential downside

Apr 20 2022

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