In our last update (on November 19), we were mentioning that between 3,400 and 3,500 points there should have some massive buying interests. However the All Ordinaries Index (ASX:XAO) reached a lower level on November 21 at 3,200 points on intraday, and a low closing price at $3,332 points the day before.
The intraday price at 3,200 points was a 5-year low never reached since December 2003. The rebound generated last week has already lifted up the index by 14.75% from this low price. As a result, the indicators have turned bullish and argue for a further price development on the upside. But it may be only a short-term correction.
Indeed, the bearish trend generated in May 20 this year will remain valid as long as a corrective rebound has not cleared significant intermediary resistances. A bearish trend is characterized by lower highs and lower lows. On the chart, the original point of the current bearish trend is point A. Lower high points have been posted on the following months (points B, C and D). Lower low points are points E, F, G and H.
According to technical analysis, the bearish trend will consequently be erased when the price action will be able to break above the last significant high point (here this is point D posted on November 5 just below 4,300 points). This is the new level that traders will particularly focus. Furthermore, this level exactly corresponds to the 38.2% Fibonacci retracement ratio of this current bearish trend (between points A and H).
However such a scenario implies another 17% rise from the current price. And right now there are two immediate resistance levels that may end the rebound. First, as often the previous low point (point G) might be a new high. Second, the first Fibonacci ratio level (23.6%) at 3,900 points is also a potential limit for the Index bounce back.
As mentioned above the indicators are bullish. The technical momentum indicator has surged and the MACD has just triggered a positive alert as it has curved upward and crossed above its signal line. Moreover, there is a bullish divergence as the recent low of the MACD did not confirm the new low posted by the price action.
On the downside, a break below the recent low at 3,200 points would confirm the continuation of the bearish trend. A rangy market between 3,200 and 4,300 points during the coming months would build a consolidation phase.
Good Investing,
Gabriel
