The Italian 40 (Borsa) Index has been the stock index of choice for channel traders over the past year. Since the channel low was established on May 2010 at 18,030, the index has gradually moved higher finally reaching resistance at 23,250 on February 18th of this year.

Trading very similar to other European Indices such as the ESP 35, FRA 40, and GER30 the ITA40 has charged higher with a flood of cheap lending from the ECB (European Central Bank). In previous articles we have discussed the recent dovish statements coming from Chairman Jean-Claude Triche. As policy remains the same, we can look for business as usual and our trend to continue.

Price Action

Zooming in on a 4hr chart we can see our uptrend is beginning to consolidate in a Chunnel pattern. Support is currently sitting near 21,500 while resistance remains overhead at 22,500. Both levels have held from multiple price tests and have confirmed their validity as support and resistance. As price continues to move down our Chunnel, the likely hood of a breakout increases.

Trading O pportunity

My preference is to look for buying opportunities as price tests 4hr support near 21,500. Our initial stops should be set below the previous low under 21,100. Our sights can be set at channel resistance of our daily chart near 23,500 or better for a near 1:5 Risk/Reward level.

Alternative scenarios include waiting for a breakout higher and joining the trend looking to find resistance on our daily channel resistance line.

Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email [email protected] to be added to the distribution list.