The first chart below of the S&P/ASX200 index uses two charting techniques, support and resistance zones and long-term trend lines that form channels.
The channel demarcated with red trend lines is an upward trending channel and the channel demarcated with black lines is a downward trending channel at an inverted gradient of the up channel.
Whilst the S&P/ASX200 has enjoyed nearly a 10% run-up from its low on February 10th, it is still not yet out of the woods.
Its last trough was a higher low and it has risen above its last two short-term peaks, which is an early sign of a turn-around to the upside.
However, resistance lies ahead in the 5280 to 5335 zone, and stronger resistance between 5400 and 5500. The S&P/ASX200 needs to break out above the latter resistance zone before we can say with more confidence that the longer-term downtrend is over. When the most upper down trending black channel line is breached, technically the S&P/ASX200 will be back into a long term up trend. That is still another 10% away but the good news is that every reversal starts in the way that the S&P/ASX200 is currently moving. The bad news is that every start doesn’t necessarily complete a reversal.
Source: Beyond Charts
The second chart below shows a shorter term down trending channel and the S&P/ASX200 breaking through the upper channel line. Whilst this is not a long-term signal it certainly is a pre-requisite for a longer-term positive move.
Source: Beyond Charts
If this upward move falters and doesn’t persist, then the support zones and trend lines below the current price are the support levels that need to hold for another attempt at reversing the current longer-term down trend. If they don’t hold, then another assessment of lower support levels will be required.
However, given the recent rise in the S&P/ASX200, the potential upside scenario should still be the focus for the time being. Keep an eye on the overhead resistance levels to confirm the current short to medium term uptrend continuing to strengthen into a longer term uptrend.
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.
