The crash on equity markets is not over. As for the S&P/ASX 200, the All Ordinaries Index price action has cleared one after the other its intermediary support levels that may have temporarily stopped the current continuous decline.
First, a few figures to clearly understand the strength of the turmoil: since the historical high posted on November 1st last year (point B on the chart), at 6,873 points, the index has declined by almost 43%, as last Friday the closing price settled at 3,939 points. The index also corrected by 35% since May 19 this year, which has been the peak of the rebound generated in March (point C).
Investors were expecting target levels on the downside to give some support to the price development but giant mistrust atmosphere wipe both technical analysis and fundamentals out. As a result the Index has been plunging like a stone. A key level was the 61.8% Fibonacci retracement ratio of the 4 years-and-a-half bullish trend occurred between 2003 and 2007 (between points A and B). It was also corresponding to previous highs posted in March, June and July 2005. This previous high level, around 4,250 points, became a new low (point D) after it had been cleared on the upside.
The Index closed just above this level on last Thursday. However the massive crash on Friday easily broke this support. As the technical indicators remain negative and did not reach yet extreme values, it is likely that the Index will test further down before finding some decent support.
The MACD and the CCI are clearly bearish but indeed far from their lowest values. For instance, the decline occurred at the very beginning of 2008 drove those indicators much lower than the current levels. The Index is actually oversold but it can remain oversold much longer. There is consequently some further bearish momentum to come.
In this scenario, the main target before a potential consolidation and before the strong rebound that every investor expects is the level of 3,400/3,500 points. It means that it is roughly 12% below Friday’s closing price.
This objective level corresponds to previous high level reached in 2001, 2002 and 2004 (points E, F and G) that became a new low (point H).
Good Investing,
Gabriel
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