After the Dow Jones yesterday, we have a look at the S&P/ASX 200 index today. The overall configuration is broadly speaking quite similar.
Where goes the investable benchmark for the Australian equity market? After 4 years and a half of continuous rise between March 2003 and November 2007, the index has now retraced 50% of this bullish trend.
The coming weeks should be particularly sensitive as the global equity markets are on the edge (lows of the year, 50% retracement of the 2003/2007 bullish trend…). The news from Wall Street about potential new collapses will keep investors nervous and anxious therefore markets will remain volatile. Large swings and strong rebounds and pull backs may be expected on the near-term.
The weekly chart shows the 50% retracement of the bullish trend occurred between March 2003 and November 2007 (between points A and B on the chart). This support level has already been hit in early August (point D), generating a small rebound. Yesterday the price closed below this level, which is a bearish sign and may indicate that the support is cleared and that the price action will move further down. A confirmation is however needed as a false break signal is possible.
The price action slightly rebounded on point C but was unable to gain positive momentum. A few profit taking trades or new long positions builded up there but it was not enough to convince the rest of the market to fly back into the ASX 200 stocks. As a result, the technical indicators which were moving up since mid-July have now triggered bearish signals.
This is the case with the MACD which crossed below both its signal line and the 0 line. It is also the case with the Momentum indicator which peaked and turned downward to cross below the 100 level. Consequently it is more than likely that the Index will fall lower on the near-term.
What could be the next target for this price action?
The new target will be the 61.8% Fibonacci retracement which is set around the level of 4,300 points. There will be a probable rebound as it is the last significant support level. Indeed, the 61.8% ratio also corresponds to a previous high which had been posted in March 2005 (point E). Previous highs become new lows therefore some buying interest should appear at this level.
On the upside, the current resistance line goes through the highs posted in early November 2007 (point B) and in May this year (point C).
Good Investing,
Gabriel
