The S&P/ASX 200 just closed at 3,955.30 points, up 1.56% yesterday. The price action has been consolidating its bullish move generated in early May. The last two weeks had been a non-directional market with up and down short-term moves, but it seems now that a new bullish trend is building up.
There was an immediate support level around 3,720 points which has been tested and validated several times this month. On the upside, the index seems to be capped around 3,950 points. This is the current level. The futures indicate that a positive session is possible today. A closing price above 4,000 points would be clearly a new strong signal that the bulls want to lead the index higher.
The indicators had shown that the momentum developed since March had weakened in May, and that the volatility was extremely low. That’s why the month of May was a consolidation period where investors made a pause after two months of rebound (March and April).
Despite this rebound, the price action has not retraced yet (less than 25%) an important part of the decline that started in November 2007. There is potentially more to come and it would not mean that the long-term bearish trend is over. So how far can this rebound extend?
The indicators switched those past few days and turned back bullish. The MACD found some support on an ascending oblique line and has curved upward. It also crossed above its moving average 2 days ago, which conform that the momentum is strengthening. The Relative Strength Index (RSI) has spiked above the 50-value but does not show any overbought configuration.
If the price action confirms that a second wave of rebound is developing, the target of 4,200 points would probably be the immediate resistance. This level corresponds to the technical oblique line that comes from the historical high of November 2007 (point A) and that goes through lower highs (points B and C) of December 2007 and May 2008.
