A hint of retreat?

I haven't posted for a few weeks because there has been little to report. The XAO Indicator continues to remain blue although there is a hint that a retreat is looming as a minor double top seems to have formed right on the minor retracement level of 76.4% which stopped the market in early November. Here's today's chart. Will keep you posted.

XAO Indicator still blue

The XAO Indicator is still positive and we have had a bounce but you would have every right to remain skeptical about this market. Here's an up to date chart.

Support not holding

The old resistance zone of 4700-4750 does not seem to have provided much support. If the All Ords closes under 4700 for more than a day or two more, it will not auger well for the near term. What's more, an intra-day low on the All Ords below 4651 (tomorrow) will turn the XAO Indicator red. As we know from experience, when the XAO Indicator turns red, we need to be cautious - to say the least. For what it's worth, I continue to believe that the 4620 level will provide good support but that will be in the face of a red XAO Indicator. Given the increasing international volatility (Korea, Ireland, China 'tightening'), you would have to say that if the XAO Indicator turns red tomorrow, you might prefer to watch from the sidelines.

All Ords testing support

The All Ords is now at the bottom of the range of the old resistance zone - 4700. Since early October the All Ords has hardly spent any time below 4700. Look at the chart below and you will see what I mean. A couple of days below 4700 could portend lower prices. And significantly, the XAO Indicator will turn red below 4640 (dotted green line).

On the chart above I have also drawn in the common retracement levels of the move down from the April high to the May low. As you will see is quite common for the price to oscillate between the common retracement levels. If this were to continue to hold true then the All Ords could bounce from here (being the 61.8% retracement level). If it does not hold here, then the next support level could be around 4620 (being the 50% retracement level). To me that looks the most likely although at that level the XAO Indicator will be red.

All Ords through resistance zone

The All Ords is well and truly through the resistance zone we have been watching for many weeks - but it has been a struggle. Theoretically we should roll on now until the next significant resistance - 5000. The 5000 level represents a 50% retracement of the move down from the all time high in November 2007 to the March 2009 low. If the market gets there, it will be the second test of that level - the first attempt was in April this year. The XAO Indicator remains blue and while it does so we should hold on to our long positions. Hopefully any pull-back will find support at the previous resistance of 4700-4750. Here are two charts. One is a daily of the All Ords and the other a weekly to give you a longer term perspective. Click charts to enlarge.

A Tale of Two Cities

These two charts could explain the indecision in the All Ords. The top chart is BHP for the past 5 months. The lower one is CBA for the same time period. They have moved in mainly the same direction during that period. But during October something odd has happened. While BHP continued onwards and upwards (essentially following the DOW), CBA abruptly turned around and headed south. Other banks have behaved in the same way as CBA, while resource companies are with BHP. What's this about?

All Ords dilly-dallies

While the Dow tests April highs, the All Ords languishes 6.5% below its April high. Is the All Ords lagging or telling us not to go there? At the moment it can't convincingly shake the resitance zone (4700-4750), although it has broken the trend-line. Interestingly, after breaking the trend-line, it pulled back, touched it and then bounced off it sharply. Also, the XAO Indicator remains blue. The next post "A Tale of Two Cities" could explain the indecision - resource stocks are powering ahead while financials charge in the opposite direction - no wonder the All Ords is standing still caught in the middle of the tug of war.

All Ords closes above resistance

After nearly a month of prevarication, the All Ords finally closed above the upper range of resistance - not to mention having clearly crossed above the down-sloping trend line. Needless to say this is a good sign for those of you holding long positons. The old resistance should now act as support and there's now not much to suggest the market won't reach 5000 or so. That should take about a month from now. If there is any change in that view I will let you know.

Resistance holding on All Ords - but will it last?

So far, the resistance level (4700-4750) is holding back the All Ords but will the 'levee' hold the 'rising waters'? Time will tell. Here's an updated chart. Keep in mind that the XAO Indicator is blue and there have been a number of changes to the indicator in recent times. That tells me that if the All Ords were to break upwards it could break hard and fast - 5000 would be the next stop.

All Ords - Will it break through or break down?

The XAO Indicator is still positive, although it has gone sideways for the past two weeks. Looks to me as though it can't make up its mind - to break through or break down. Personally I am becoming more confident that it will ultimately continue its upward move. On the other hand, that's a typical emotion to have near the top of the market. Let's review the resistance we are up against right now. First, the current resistance falls on a 61.8% retracement of the move down from the April high to the May low. Secondly, there's that long downward trendline connecting the November 2007 high and the April 2010 high that the market has to get through to move higher. Thirdly, the 4700 to 4750 resistance level I have previously mentioned is also a resistance zone highlighted by the Advanced Get software. Oh and one another thing, an astrologer wrote recently says that by mid-October the stockmarket will be back in the headlines again . . .  well, we'll see. Here's an updated chart. By the way, if the market breaks through the resistance, there's a good chance it will break hard and it is not difficult to see the market running to 5000 in quick time.

All Ords update

The XAO Indicator turned blue on Sept 7 as expected. This is now the 6th change in the indicator this year. That is a record. Old traders will tell you that a long period of indecision in the market will often be followed by a dramatic move. The question is which direction will that move take? Well, I have my suspicions but investing and trading should not be a guessing game. Personally I will be following the XAO Indicator. While it is blue, I will be long, when it turns red I will be taking precautions. Here's today's chart. The downsloping line is a trendline connecting the Nov 07 high with the April 10 high. The horizontal line (4,735) is the predicted point at which the downsloping line might intersect the All Ords.

Is XAO headed higher? For how long?

Despite the recent rally, the XAO Indicator has yet to change to blue but it is less than 5 points away. 4,619 is the level at which it will change and that could come as early as tomorrow. But if it does change, how long will it last? As you can see from the August 28 post, September is historically the worst month for the Dow and our market will follow the Dow. Today's chart shows the downsloping trend line drawn by connecting the high of Nov 1, 2007 and the high of April 15, 2010. That should create some resistance for the All Ords between 4,700 and 4,750 and that should come in the next week to ten days just in time for a September high.

Stockmarket monthly gains

Here are two interesting charts showing how stockmarkets have performed historically during each month of the year. One chart shows the average monthly gain for the Dow for the past 60 years and the other represents the monthly performance of the All Ordinaries for the past 30 years. They show similar results but with some differences. What they have in common is that April is the best month for the markets followed by July and December. September is the worst month for the Dow while October is the worst month for the All Ords. February and June are negative months for both markets.

All Ords turns down

Here's today's chart showing that the All Ords has turned negative. This is not a good sign for the market. It's little like a theme park roller coaster that has gone up and over the hill and has now started the journey down. What we don't know, is whether this will be a long decline or a short one, whether it will be steep and fast or gradual and slow or a bit of both. Whichever it turns out to be, one thing is now clear, the direction will be down. By the way, the Dow also turned red last night.

XAO update

The XAO Indicator will turn red if the All Ords crosses below 4405 on an intraday basis. The Dow will turn red if it goes lower than Friday's low of 10216.

There's a bear in the woods

   "There's a bear in the woods" was the opening line of a TV ad for Ronald Reagan's 1984 presidential campaign. The commercial featured a bear wandering through a forest accompanied by narration suggesting that the bear could be tame or dangerous and that it would be wise to be prepared for the latter. http://www.wikio.co.uk/video/ronald-reagan-tv-ad-bear-105484 Reagan's ad has been interpreted to mean different things, but to me the bear was a clear allusion to the USSR and the Cold War.

   Anyhow, whatever its original purpose, I think it is the perfect metaphor for the current state of the stock market. The following chart illustrates that there is definitely a bear in the market. It could be tame or dangerous and it would be wise to be prepared for the latter.

This chart shows the All Ords for the past 3 years (click to enlarge). You will see that the rally from the March 09 low retraced about 50% of the previous move down. I have seen the 50% retracement level stop rallies in major bear markets before and now I am concerned it has done it again.  Keep your eye on 4360. If the market falls below that point this week, the bear will turn dangerous and he will probably have a few dangerous mates with him.

When is a correction a correction?

A comment to the August 9 post asks why I called the past 3 months of red bars a 'correction'. Was it not just a fall in the market? Well, to paraphrase Julia Gillard: 'That's a good question. I'm glad you asked.' The short answer is that the use of the word 'correction' is just a personal choice. Admittedly, it implies the market will resume the upward move. (Whether that's reasonable remains to be seen.)

The chart to the left shows the rally from a low of about 3100 in March 09 to a high of about 5050 in April 10 - a move of 1950 points. The decline since April was about 800 points - a decline of about 38% of the previous rally. The 38% level is a significant support level. If the bars stay blue and the market moves above the April high, then the past 3 months of red bars will be considered a short term set-back to a longer term up move - a true correction.

But there is another way to look at this. The next chart is also significant. This chart shows the move down from the October 07 high to the March 09 low - 6800 to 3100. That's a move of 3700 points. It could also be said that the recent rally (March 09 to April 10) wais just a 'correction' of the previous down move. And more significantly, that 'correction' was almost exactly 50% of the previous down move. If the rally was the correction, then the past 3 months of red bars could just be the start of the resumption of the down move.

'Uh-oh' says Terry McCrann

'Uh-oh'. They were the opening words in yesterday's article in the Herald Sun by one of the country's most respected economic journalists. The words summed up his reaction to the news from the US that a 'double-dip' recession is back on the cards. That news explains the hesitation last week by the All Ords to follow the Dow and the Shanghai Index in turning blue. It seems that rather than lagging those two indexes, our market was trying to tell us to be wary.

The 4550-4650 level is proving difficult to get through and that level it seems has somewhat of a history.

In Sept and Nov 05 it acted as resistance holding back a rising market. In Sept 08 it provided temporary support to a very weak market. In Nov 09 and Feb 10 it provided support again. And this year it has acted as resistance three times so far in May, June and August. 

Now the thing is that the XAO Indicator will turn red again very quickly if the All Ords drops below 4360 (refer to chart on left - click chart to enlarge). That is only 62 points from today's close of 4322.

The last time the XAO Indicator went from blue to red in quick time was in September 2008. That time we had only 5 blue days. That was followed by 4 months of red bars and a fall in the All Ords of over 1700 points or 35%. Now I am not suggesting that is about to happen again. But here's the value of the XAO Indicator. When the bars are red it is a time for caution - sometimes when the bars are red the market can fall dramatically. Will keep you posted.

All Ords now in uptrend

The 3-month correction in the Australian sharemarket is now 'unofficially' over.

The XAO Indicator today turned blue. Statistically (measured over the past 30 years of data), 67% of the times that the indicator turns blue the next red bar will have a higher close that the close of first blue bar. Today's closing level on the All Ordinaries Index was 4,615.60. There is a 67% probability that the next red bar will be higher than 4,615.60. By the way, the XAO Indicator will turn red if it makes an intra-day low below 4,360. That is a dynamic level - it will change with time and will rise with the market rising.

Is the All Ords at a cross-road?

The June 22 post shows the All Ords on the verge of turning blue but facing stiff resistance between 4550 and 4650. The market couldn't punch through and then fell more than 400 points. Now we're here again - in the same resistance zone and tantalisingly close to turning blue. Will the market break through or will it flop like it did in June?

Here's a possible clue. The chart to the left is the DOW for Friday August 5. On that day the US market got some bad economic news. The DOW promptly fell 160 points but later recovered to be down just 21 points at the close. That looks bullish to me.

Here's another clue. The chart to the left is Giralia (GIR). I first mentioned GIR in the July 23 post. I regard GIR as a leading indicator - especially for resource stocks. On that day it turned blue and was looking bullish. It promptly rallied and then took a breather. On Friday in a flat market, GIR jumped out of a small consolidation zone. GIR looks like it is heading to at least $2.85 and maybe $3.20. If it does that the All Ords will test 5,000. But before you rush out and buy stocks, remember there's an awful lot of resistance for the All Ords to get through.

All Ords update

If the All Ords (XAO) takes out the high made on 3 August (4,597.50) the XAO Indicator will turn blue.

DOW turns up - All Ords hesitates

The Dow has followed the Chinese market and turned blue. If the All Ords makes a new high on Wednesday it too will turn blue. A comparison of the reliability of the XAO Indicator between the three markets shows that the indicator is most reliable on the All Ords. I will let you know when turns blue.




Click chart to enlarge

Shanghai, the Dow and the All Ords

Below are three charts: the Shanghai Composite Index, the Dow and All Ords. The vertical red line (19/4/10) shows the Shanghai index turning red 12 days before the Dow and 8 days before the All Ords. The Shanghai index turned blue yesterday but the Dow hesitated - having got within 16 points of turning blue on 27/7/10. The All Ords is still 100 points from turning blue. Is the Shanghai index leading the way again?

Shanghai- click chart to enlarge

Dow- click chart to enlarge

All Ords- click chart to enlarge

Is Giralia pointing the way?

One of my favourite stocks is Giralia (GIR). One reason for that is that its chart is highly reliable. Today the daily bar turned blue. The 'XAO Indicator' is quite reliable on the Giralia chart. When it turns blue on Giralia, it is a good reason to believe the overall market is going higher. (The writer owns shares in Giralia - This is meant as a disclosure only and not a recommendation of any kind)




Click on chart to enlarge

Is direction about to change?

Over the past week or so, the All Ords has formed a tiny 'flag' and today it broke out of that flag. Often, a flag forms at about half way of the move. The half-way point is shown by the dashed green line. This means that we can expect the All Ords to reach the upper green line - at a minimum. I expect it to find resistance at that point and 'lo and behold' that resistance coincides with the June high. If the June high is taken out, the XAO Indicator will turn blue. To me the price move from the July 6 low looks bullish. I think the odds have shifted and favour a change of direction to the up. This won't be confirmed until the June high is taken out.

Click on chart to enlarge

No change

The XAO Indicator is still red so the main direction remains down - but there has been a heartening little rally off the recent low (6 July). If the All Ords takes out the high of 14 July, that would be interesting for the bulls. At this stage though, we still need to see the 21 June high of 4,641 exceeded for the XAO Indicator to turn blue and there is an awful lot of resistance to get through starting at about 4,525. The market has been sitting around under that resistance for a couple of months now.

Click on chart to enlarge

Is this a turning point?

First it could be a double bottom. Secondly there is divergence on the price oscillator - that means the index has made a new closing low but the price oscillator did not. Thirdly, you will see from the 27 June post that the "PTI" number of 26 indicated a "failed 5th" meaning that the move down was likely to end at the May low. But before you get carried away, remember that these comments are merely cause for hope and not a pointer to a high probability move up. Also, even if the market does rise from here, the probability is that it will end at or below the high formed on June 21 (that is what happened in June when the market failed to exceed the May 13 high). The June 21 high must be execeeded before the XAO Indicator will turn blue.

Click on chart to enlarge

Clues from the Chinese market

The chart below is of the Shanghai Index. Interestingly, it turned red well before the All Ords - seemingly leading our market down (the red vertical line indicating when the XAO turned red). Ominously, the Shanghai Index has just fallen out of a consolidation zone. Such zones often form at the half-way point of the move. If that is right the Chinese market has another 500 points to fall.

Click on chart to enlarge

Another perspective

Here's another perspective of the All Ords. This chart comes from the Advanced Get software. There are a couple of heartening pointers from this chart. First is the number "26 PTI" which appears on the far right side of the chart in the middle of the page. A PTI under 36 indicates a "failed wave 5". In short this means that the move down which started this past week is likely to end at or above the low made  in May. Secondly, the fact that the rally from the May low ran up above the "red tram tracks" (which you will find above the blue and green tram tracks) increases the probability that the decline from the June high will not be long lasting. Having said that, anything is always possible including the market falling well under 4,000.

Click on chart to enlarge

Also, while the above chart is interesting, the best guide is always the XAO Indicator. Here's the chart showing the XAO Indicator for 25 June 2010.

Click on chart 

Is the Indicator pulling back from the brink?

The area covered by the long blue rectangle in the chart below has formed substantial support for the All Ords Index since October 2009. Often, previous support will act as the new resistance level (and vice-versa). Right now the index is in the middle of that support/resistance level. There is a danger that it will fall back from here just as it is on the verge of turning positive (blue). This not uncommon. So, we continue to be wary that the next major move could yet be down.

Click on chart to enlarge

Change of direction looking inevitable

The XAO has a look of inevitability about it. Today's close was 4,633. Any intra-day move above 4,680 - that's 47 points away - will turn the XAO Indicator blue. If it does turn blue, there is a 67% chance it will go higher before turning red again. This is based on data going back to 1980.

How much higher? Who knows? In truth no one can know for sure. What we do know is that when the bars are blue it is a good time to be long. When they are red, it is a good time to be in cash or part cash and part shares. Another option when the bars are red is to buy some insurance by way of options but that is something for another day. Here's today's chart.







Click on chart to enlarge

Where will XAO Indicator turn blue again?

XAO Indicator will probably turn blue again at 4,680. That's only 135 points away. That would be an interesting turn of events given all the talk about double dip recession. Anyhow, talk is just talk, what is relevant is what is actually happening. At the moment the market is telling me to be cautious. When the bars turn blue, I will be taking a positive stance. Will keep you posted.

Here's a current daily chart covering the past 12 months.

Click on chart to enlarge

Indicator turns red

Last buy date was 08/03/10. Today 03/05/10 the indicator turned red. It's now a time for caution.




Click on chart to enlarge