ASX/S&P 200 to head to 6000 by 2016

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Friday’s fall of 74 points took the ASX/S&P 200 back to a level that it was at some nine and a half months ago. One could argue that the Australian bourse has marked time over this period. However no market marks time, it is always moving and in so doing provides invaluable information that provides clues on where it may be headed.

The story so far

The ASX/S&P 200 weekly chart below provides investors with a big picture view of where the ASX/S&P 200 has been and where it may go.

The rising channel, the black lines, shows that the ASX/S&P 200 is in an up-trend, which started in May 2012.

In October 2013, which is around the leftmost area of the upper blue horizontal rectangle, there would have been sufficient data to create this channel. At that time, the ASX/S&P 200 had risen to the top of the channel, which typically indicates that prices may retrace either to the median line or all the way to the bottom of the channel. Alternatively, prices could bob along below the upper channel line.

In this case, the ASX/S&P 200 retraced to the median line of the channel and has continued to bob along just above the median line.

This slightly rising price action has resulted in resistance being encountered at the 5420 to 5440 zone from October 2013 to April 2014. The ASX/S&P 200 then rose above this blue horizontal zone and has retraced back down to it and it has now become a short-term support zone. This is where the ASX/S&P 200 is right now, smack in the middle of this support zone, which now coincides with the median line of the rising channel.

Source: Beyond Charts

ASX/S&P 200 prospects

Let’s turn to where the ASX/S&P 200 may go. From the analysis shown on the chart, and much other analysis, I have formed the view that the probabilities lie in favour of the ASX/S&P 200 rising rather than falling.

This is where the combination of Fibonacci retracement and projection can be used. Firstly, to back the case for a rising ASX/S&P 200, from here I would expect support to hold around Friday’s close or maybe slightly lower down to 5370.

From these levels I would expect the ASX/S&P 200 to rise to the 5755 to 5805 zone, which is the next set of red and green horizontal lines above the current level. This zone coincides with the end of the upper black line of the rising channel.

If the uptrend continues thereafter, the ASX/S&P 200 should march on to the 6050 level where some weak resistance should be encountered before rising to the 6285 to 6425 zone, the next higher set of green and red lines. This rise will not be in a straight line. How long it takes will depend on the gradient at which the ASX/S&P 200 continues to rise and what shape the rise takes.

To give us some insight, the chart below extends the upper and median channel lines at the same gradient, shown by the orange extended lines. This is a huge assumption and should only be used as an indicative estimate based on this assumption. The extended median trend line estimates that 6285 could be reached by August 2016, at this gradient of rising, indicated by the vertical dotted line at the right side of the chart.

If the upper trend line is used for the rough estimate, the projected date could be September 2015. Of course, the gradient could increase or decline, changing these estimates by many months.

Source: Beyond Charts

Gary Stone is the Founder and Managing Director of Share Wealth Systems.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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