The All ordinaries index is bouncing back, reader. Where could this move go?
After the 19.5% fall started in May 19, the Index posted a low on July 16 at 4880 points.
The All Ordinaries index has already rebounded by 5.7% since mid-July. The two-month fall between May and July was so sharp that a rebound had to happen eventually.
If you take the two extreme points of this fall (points A and B on the chart), the price closed yesterday at 5,160 points which is right on the 23.6% Fibonacci retracement level.
It shouldn’t be strong resistance. That level has no historical significance. Investors will focus their attention more on the next two retracement ratios: 38.2% and the 50%.
There’s plenty of upside left. Fundamentally, the markets will pay attention to the commodities price action. If the oil price breaks below $120, it may be a strong signal for a further decline towards $100 in the medium-term. Global investors would regard that as a pretty favourable outlook for the second semester of 2008.
But what of the symptoms in the share market? Here’s what the charts say…
For the All ordinaries index, the technical indicators are bullish. The RSI shows that the index was (and is) oversold. The MACD shows that there is some bullish momentum building up.
If equity markets bounce back as sharply as we think they might, the 50% retracement ratio above should be the next target for the current price action. Barring a big change in Earnings, Energy prices, or Economic data, the All Ordinaries should keep moving up towards 5,450 points.
[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]
