In our last update we were mentioning that it was probable that the Index would fall further down towards the next significant support area, around 3,400/3,500 points.
Last week the price action posted an intraday low below 3,700 points and closed at 3,755 points on Tuesday. The following 3 trading sessions were up and today the market has also opened higher. A rebound is building up and might gain some momentum in the coming days.
Between the high point of May this year (point A on the chart) and the recent low (point B), the All ordinaries Index plunged by 38%. Only a few very short rebounds were initiated during this period, but as the technical indicators declined to extreme low levels and argued for a massive oversold configuration, this time the rebound could drive the Index more sharply.
The oscillators already curved on the upside as short-term traders have been buying back since last Wednesday. Now, as the momentum indicators also turn bullish, it could bring on the market new players (medium-term market players) that will need to take advantage of an end-of-year correction to improve their funds returns.
The MACD and the CCI are clearly bullish: the MACD has bottomed, curved upward and crossed above its signal line at the end of last week while the technical Momentum indicator soared. Both of them come from very low values. Last time when those indicators reached such low levels and then bounced back in a similar way, it was in last January. At this a correction move of 15% in a deeply oversold market occurred. An identical move is expected.
In this scenario, the main target would be the first Fibonacci retracement level (between points A and B) therefore the 23.6% ratio. This level, around 4,250 points, is exactly 15% higher than the recent low around 3,700 points. It is the first objective.
A further momentum in the correction move would lead the Index to the 38.2% ratio, at 4,600 points. It also corresponds to a previous low posted twice in September.
Good Investing,
Gabriel
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