The last time I spoke of this most important Index was on Switzer on 29 November 2012 [1].
At that time, the market in my opinion was well balanced at 1,410 with two levels identified, G = Good at 1,448 and B = Bad at 1,354.
The premise was that if G was breached, then this was Good and the markets would run up.
On the other hand, if B was breached, this would be Bad and the markets would fall.
G was breached on 2 January 2013, and the market has run steadily up 3.6% in the past month without looking back.
The questions now on everyone’s mind are: “Where to next?” and “Do we buy now?”
The positives on the chart below number six points, while the negatives number seven.
While this might seem confusing, the news is good.
The charts have cleared the way for a healthy medium-term outlook. This timeframe ought to last several months, say from three to eight months.
In the shorter term though, in clearing the important level of 1,448, it has “shown us the way” and risen nicely, but arguably too much in less than a month. The difficulty at the time of writing is that the market has shown no sign of slowing, but is expected to reverse either here and now with strong resistance at 1,502 and if not, then at or around 1,552, or 3.4% more.
1,552 is shown as “L” on the chart and it is possible, but not necessary, as a level to hit in the short term before a retracement is seen.
This analysis conforms with the analysis last week of the Shanghai Index, namely patience for now is the safer option on a short-term basis. A better entry level ought to present.
If your time frame is longer term, then there is also the argument to simply buy some more now, if you haven’t already done so.
[2]Positives
- The 200-day moving average is pointing upwards now.
- Weekly time frames indicate more upward momentum to be expected.
- The “G” standing for “Good” level of 1,448 was tested, rejected, and then broken on 2 January 2013. It has been on an upward steady run since. Up 3.6% from 2 January. This is very strong and steady.
- 2013 for the next 12 months ought to be positive.
- An extension of this current bullishness another 3.4% to 1,552 is not out of the question, though not ideal. Last year the 14 September, represented a height of bullish sentiment, where the Index was 9.3% above the moving average.
- None of the downside risks of the “B” level was seen. Trading has been positive to the upside, removing the doubt that had existed.
Negatives
- Indicators are topping out on daily time frames.
- Strong resistance is at 1,528, or 1.9% higher.
- Strong level is at 1,502, which is where we were end of last week, expect selling pressures right here and now.
- Next levels on upside are:
a) 1,552 or 3.4% higher
b) 1,593 or 6% higher
Both these levels seem a stretch at this point without a pull back. - A stretch towards higher levels of 4a) and 4b) above without a pull back firstly would be negative for the market and implies an irrational exuberance mindset change. For the long run, this is not desirable.
- The run up now from the last major low of 1,343 on 16 November 2012 is 11.7% to date. In 2.5 months, this is substantial and arguably too much in such a short time.
The Index is 7% above the 200 day moving average. This is again a significant amount and reveals a risk of a retracement in the wings.
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.
Also in the Switzer Super Report:
- Peter Switzer: I’m positive! What can go wrong? [3]
- Tony Negline: Trust the law – where your power as a trustee comes from [4]
- Rudi Filapek-Vandyck: The broker wrap: Coca Cola and Fortescue upgraded [5]
- Paul Rickard: Investing in property gains traction, size really does matter [6]