The Australian market is small and relatively unimportant in being able to set its own direction.
Australia’s stock market ranks ninth or tenth in the world in size, depending on which report you read, and as at the date the report was written.
At times, the Australian market does provide insight by affirming the likely direction of not just this market, but what is also happening elsewhere. This is what we have now and I’ll focus on this today. This could be the first time in over 12 months I’ve talked about the Australian Market, which feels strange given the location of our investments are primarily in Australia.
But let’s start with the all=important US Market. In my last appearance on Switzer on 30 July 2012, we had an outlook for a level of 1,422 on the US S&P500 that was 2.6% higher at the time. We hit that level on 21 August, last Tuesday US time, with an intra-day high of 1,426. Our level was then rejected, with the market closing lower on the day at 1,413. The index now sits at 1,411.
The US does not look like it will stretch much higher in the short term, and even if it does, it is likely to be short lived.
Shanghai has made a new low, and on Friday closed at 2,092. The nice round support of 2,100 has given way. The index is now back down to levels of 6 March 2009, before the US’s first quantitative easing stimulus package.
The Aussie market
Australia has affirmed this negativity with an ‘Imperfect Tweezer Top’ formation.
The evidence is building that we’re going to have lower levels retested in the coming weeks to months.
I’m scheduled to appear on “Switzer” on Monday 3 September. This will be as usual, my ‘big’ monthly update, projecting forward the market’s outlook to the next month. For those of you who can’t tune in, we’ll have the video up on the Switzer Super Report website.
ASX 200: 4,349 The Australian Market Forms An “Imperfect Tweezer Top”
Negatives
1) Almost a ‘Tweezer Top’ formation at 4,203. This is when you have two highs on different days that are identical or close enough to be equal to each other, on bars that are, what I call, ‘top rejection bars’.
In this instance, last Tuesday we had a high of 4,402.7 or 4,403, and on Thursday we had a high of 4,403.9 or 4,404. This is close enough to be counted as equal tops.
The imperfection is that the bars are green, and not red. This tells me that this market is not quite ready to fall.
2) The negativity of the “Tweezer Top” is affirmed on Friday by the last red bar on the right. Note my wording, affirmed, not confirmed. This means there is a chance that it will not fall off straight away.
3) This market is likely to remain in a range and we are at or near the top of that range.
The range being:
a) On the top side the 1 May high of 4,448 to the far left of the chart; and
b) On the bottom side 4 June in the middle of the chart, 3,985.
We only have a range of 10%, with 9% in a worse-case scenario to fall. But there is no evidence the full downside range will be seen.
4) The outlook for moves up will be limited, while moves down have a greater risk in percentage terms.
Positives
1) The 200-day moving average is flat. This indicates it is trending sideways. This is not really a positive, but at least it’s not pointing down!
2) A small support level is marked by the little “s” at 4,308. This is only less than 1% away before we will gain an indication of how strong or weak this market really is.
3) Stronger support marked by the larger “S” is also not that far away at 4,212. This is just a little more than 3% lower. Again, this will give us an indication of whether this market can hold and the extent to which China’s weakness will impact us.
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