The way up

Today’s chart shows how the All Ordinaries has risen from a low of 4,355 nearly a year ago on 16 November 2012. The initial All Ordinaries rise was followed by a 70.7% Fibonacci (technical levels determined by the Fibonacci sequence) retracement to the middle of 2013.

From there, the All Ords has enjoyed another strong rise from 4,633 in June 2013 to 5,437, its highest close since June 2008. In this last leg up, the All Ords has experienced shallow retracements along the way, with the deepest being a 23.6% pull back to 9 October.

Shallow pullbacks are a sign of a strong market. If this market continues its strength then, from a technical analysis perspective, there is a high probability that the All Ords will have another shallow pullback from its current position.

Future direction

A really strong market may only experience a 14.6% Fibonacci retracement to 5,330, which would roughly coincide with the previous high in the trend. A strong market may experience a 23.6% Fibonacci retracement to 5,254 and a slightly weaker market to a 38.2% Fibonacci retracement to around 5,131.

All three of these Fibonacci levels are shown on the chart above. Technical analysis is not an exact science, so these levels should be interpreted more as a zone than an exact level.

The blue rectangle shows the strong 5,100 – 5,200 support zone for the All Ords. If this zone does not hold in any retracement, this might be a sign of more serious weakness and a much lower equities market in Australia.

The case for a short-term shallow retracement over the next week or so is supported by similar analyses of the S&P500, Nasdaq Composite and DAX indices.

On the upside, and after the short term retracement discussed here, my analysis shows that the All Ordinaries index could be headed for a target zone of around 5,840, but not in a straight line. More on this over the next few weeks.

Gary Stone Foundered Share Wealth Systems in 1995. He has designed three commercially available active investment methodologies that use technical analysis and regularly appears of Sky Business TV shows Switzer and Your Money Your Call discussing charts.