The current upward thrust we have enjoyed in our market as represented by the S&P/ASX 200 was ushered in on the formation of a “Golden Cross” around the week of 27 August 2012. This is marked on the chart by a red vertical line. The index was at 4,316 and the 40-week moving average was crossed from below by the 10-week moving average.
Co-incidentally, the last time I wrote about the Australian Market as represented by the S&P/ASX 200 was 27 August 2012 where on a short term basis, lower levels were predicted due to an imperfect “tweezer top” and falls of 3% to 4,212. We did have falls but only 2% to 4,261.
The week of 27 August 2012, had contradictory signals. We had a bearish short-term signal, and a bullish longer-term signal.
We got both, a short-term fall, and now, a longerterm bullish run.
The resolution of the bulls winning was around the beginning of December 2012 post my “Switzer TV” appearance on 29 November 2012, when the market was “finely balanced” either way.
Our market has, along with most other markets, been exceedingly bullish in the past 3 months. In fact, from the recent low of 16 November to 20 February 2013’s recent peak, we’ve gone up virtually in a straight line 17.8%.
The only reprieve we’ve had was last Thursday when we had an “engulfing Bear” bar, where five days of upward trading was “engulfed” by one day’s falls. This is a “top” indicator.
[1]Weighing the likely direction in the coming weeks, below are eight bearish signals versus three bullish ones.
Importantly, we are still 16.7% up since mid November 2012, and on that number alone, technicals aside, the market has an annualised return of 66.8% if that continues. This rate of rise is too high to be comfortable and reasonable.
It is reasonable that we have a healthy pull back to the support levels “S” and “S” marked on the chart. These two levels would represent falls of 4.6% to 4,828 and 5.7% to 4,770.
Bearish indicators
1) 4,828 would be a healthy level to fall back to, representing a 4.6% fall from here.
2) 4,770 is another healthy level to fall back to, representing a 5.7% fall from here.
3) The 200-day moving average is very far away – 12.5% lower at 4,426
4) 16 Nov 2012’s low of 4,334 to the current peak of 20 Feb 2013 5,106 represents a rise of 17.8% in three months. This is HUGE, and points to a percentage increase that is unsustainable. A pause is reasonable, and even desirable for long-term health.
5) 4,980 ie, the 5,000 level in round numbers, represents support that is expected to be taken out that ought to see the way for falls to lower support levels marked “S” on the chart identified in points one and two above.
6) Thursday 21 Feb 2013, ie last Thursday’s falls, created a bear engulfing bar.
7) Weekly pause bar created
8) 5,124 resistance held, going as high as 5,106
Bullish indicators
1) Higher resistance levels 5,158 and 5,177 are broadly marked as “R” on the chart and represent resistance to higher levels. If this level is taken out, then the short-term bullish outlook could continue longer.
2) No weekly divergences, indicates medium term upside is reasonable and possible.
3) 10- and 50-week moving averages crossed from below on 20 August 2012 at 4,213, giving a “Golden Cross”.
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: A bout of indigestion [2]
- Paul Rickard: SMSF property loans – how do the banks compare? [3]
- Penny Pryor: Woodside, Coca-Cola, BlueScope end week up on results [4]
- Rudi Filapek-Vandyck: Weekly broker wrap – Coca Cola, Drillsearch and Echo Entertainment upgraded to buy [5]
- Tony Negline: Why you should consider a corporate trustee [6]