Updated chart

We're back in the danger zone

The XAO Indicator turned red yesterday but what really concerns me are the consecutive lows the market is making while the stochastic indicator is oversold. We often see panic collapses in these circumstances, so hold on to your hat. It also means that the ultimate low is not too many days away now. However, even though the low may only be a few days away, it could be many, many points away from here.

New chart

No real leads on All Ords

It's no secret that this market is going nowhere at the moment so there has been very little to blog about. My guess is that we are in for another couple of weeks of indecision. While the XAO Indicator remains blue, we can expect this market to edge higher, but until it breaks through 4500 convincingly we need to remain skeptical that the trend has changed. Even 4400 is proving difficult enough, the market has been knocked back from there 5 times since August - but the declines from that level are getting shorter and shorter which tells me the market is building for a strong burst.

We have reached support (of sorts)

There is support for the All Ords right here (4220) and the stochastic is back in oversold territory. So this is as good a place as any from which to mount a challenge to the significant resistance ahead (4450-4500). That is tough resistance and even if we do get through, we have the long-term downsloping trendline (drawn from Nov '07 high to Apr '11 high) starting to come into the picture at around 4700. If the support does not hold here, we could be in some trouble.

Resistances are lining up to knock the All Ords back

4450 - 4500 is a strong resistance level on the All Ords for many reasons. First, 4450 is a 50% retracement of the April high to the August low and we are nearly there. This will be the second attempt at the 50% retracement - the first occurred on 1 Sept 2011 which preceded a 550 point decline into the October low. Next, the 200 day moving average comes in at 4475. The area near the 200 day ma often acts as a support/resistance level. Third, the 4500 area acted as a strong support zone in June and July this year not to mention that it is near the low formed in March this year. Fourth we have a MOB ('make or break') coming in at 4500 and fifth, we have the ever reliable blue ellipse right on that level as well. That is all not to mention that traders just love false breaks and today we broke the downsloping trendline - will that turn out to be a false break? And of course the stochastic has found its way back into overbought territory just to put the icing on the cake. It is starting to look too perfect - the 'utopian sell zone'. If that is not utopian enough, we get the news today that in Europe the sugar plum fairy will grant everyone's wish and make the debt problems disappear. Of course the Dow will follow through with a strong night, tomorrow we will make a spike high opening, the smart money will back up the proverbial truck and load up the short positions and get set to make a killing. Could it be that easy? My gut feeling says no, that we are going to continue higher, but the chart says otherwise. By the way, today the XAO Indicator turned blue. This is the second time it has turned blue in the decline since April. In 2008, it turned blue 3 times in the downturn - 3 false starts - before finally getting it right the fourth time in March 2009. What's more, in 2008 the market had 2 cracks at the 50% retracement level (4/2/08 and 19/5/08) before it finally cracked itself and collapsed. Will history repeat itself? I don't know but Tim Finn (Split Enz) was in the news the other day. Was he signing History Never Repeats? Not sure.

All Ords to make another run at resistance

With the All Ords having got back into oversold territory on the Stochastic, and today's move giving a candlestick buy signal, we are set to test resistance again. First we need to get through the downsloping trendline which knocked the market back last week. We are right on that trendline now so don't be surprised to see a pause here. The yellow ellipse resistance (4375) is now not as relevant as it was last week. The real resistance lies around 4500 or just under that. I suspect there are lots of sellers ready to push the button at that level.

Gold's correction may not be over

Gold is not looking like it is ready to attack the all time high anytime soon. In fact the converse seems true - the rally seems to have run out of puff after retracing 38% of the decline from the all time high. The targeted support level seems to be around $1450 (Comex). The stochastic is back in over-bought territory and has turned down and to top it off, candlestick analysis has now given a sell signal. The $1450 - $1500 area seems a much more solid place from which to launch a serious rally again being where the 4th wave of the lower degree ended - a common place for a correction to end.

Stiff resistance at 4375

4375 is shaping up as the resistance to beat. A failure to get through that level has the potential to knock this market back to around 4000. If the market gets through 4375 heavy resistance lies 100 points above that. I will want to see that level (4475) broken before I would be prepared to call the correction over. The crystal ball says breaking 4475 is not likely but we should get time to make up our minds if the market gets there.

A little moment of truth for the stockmarket

We are about to find out whether this rally is going to be sustained. We are now at a resistance point and the stochastic is back in over bought territory. What the market does while the stochastic works its way back into oversold territory will tell us whether we have turned the corner.

All Ords takes first positive step

Today the All Ords finally broke out of a narrow, down-sloping channel which began at the beginning of September. That's the first - and minimum - step to changing trend. The trendline is not a signficant one being only a parallel line to the bigger trendline sloping down starting on 22 July. The line I would like to see broken is the next one up which provides resistance at around 4200 (XAO). And there is an ellipse resistance at that level also. So I would say the bears will have another go at around the 4165 to 4200 zone. How the market behaves when it reaches that zone will indicate what this market really wants to do next.

Gold lands on support

On 26 September, Comex Gold landed on the first support level. In a bull market - which is gold - you would expect this 'first level' support level to hold and for market to now resume the uptrend. If this correction is over, the all time high of a few weeks ago would be the minimum target with the first resistance lying at around $1,715.

Anatomy of a falling market

On 30 March 2011, I wrote that we might be witnessing a replay of the 2007/08 market crash(http://asxindicator.blogspot.com/2011_03_01_archive.html). A little later I observed that the 'Japan earthquake' crash in March '11 had nothing to do with the earthquake and that something more sinister might be afoot (http://asxindicator.blogspot.com/2011/04/xao-indicator-turns-blue.html and http://asxindicator.blogspot.com/2011/05/el-momento-de-la-verdad-for-stockmarket.html). That observation turned out to be correct. I thought the rally from the March '11 low might turn out to be a 'sucker rally'. Indeed it turned out to be so. Now, I think this market has one more sucker rally left. The chart at the moment tells me we might test the August lows, but we really want to rally once more - up to maybe 4400 - 4500 on the All Ords. Check out the period from January to May 2008. That's what I think is around the corner - just one more bear rally - after that, you all know what happened. But of course that is 'crystal ball gazing' and my crystal ball is no better than anyone else's. The market could quite easily go ahead and crash right here.
If you are not scared yet, read on. I see things like this. The March 2007 correction was a precursor of the August '07 mini-crash. The August '07 mini-crash was a precursor to the January '08 crash and the January '08 crash was a precursor to a massive market decline leading into the global financial crisis. Well, the March '11 mini-crash seems to me to have been a precursor to the August '11 crash. The worry is that the August '11 crash was a precursor to something far more ominous coming our way in the next few months. And if that is not enough to scare the bejeebers out of you, consider this. It is quite possible that the whole 2008 GFC might have been just a precursor for something much more significant around the corner. I don't mean to frighten you, but one needs to be realistic. What I am saying just might come to pass.
OK, that's enough gazing at the stars. Here's today's chart. The 'make or break' at around 4075 continues to hold our market. If it falls below that level, I have said before we could be looking at around 3700 - 3800 before we get to the next support.

All Ords reaches on 'Make or Break'

The All Ords has reached the upper level of the 'make or break'. It needs to hold here otherwise there is wide open space between here and the next and more significant 'make or break' support at around 3750.

XAO Indicator back to red

That didn't last long, after turning blue on 1 September, the XAO Indicator is back to red. Meanwhile the Dow is nearing an important support zone (10,800 to 10,500). If that zone doesn't hold we could see some some sharp falls because in the near term, the next support levels are at around 9,000 on the Dow. But the $64 question is whether or not the current support zone will hold. Of course nobody knows but I continue to believe that the August lows (or thereabouts) will hold - at least in the near term. This means around 10,500  on the Dow and between 3,800 and 3,700 on the All Ords. If we don't hold those levels then in all likelihood we will test the GFC lows and possibly go beyond even those lows over time.

Make or break on All Ords at 4075

There is some support for the All Ords at around 4075 but if it fails to hold convincingly, the market will probably test the August lows. Beyond that we will need to wait and see.

XAO Indicator turns blue but resistance looms

The XAO Indicator turned blue today but there is some decent resistance ahead. The All Ords has now retraced 50% of the decline from the April high. That's already solid resistance. Added to that we have a downsloping trendline from the April high that is about to come into play. And nearby, we have the ellipses produced by the software marking the resistance for the reaction rally. How all of this plays out remains to be seen but I will say this. If Friday's close remains above 4281 (the weekly high 3 weeks ago) I will be more bullish than bearish.

Good signs on the All Ords

The little correction from the recent rally seems to have ended in a support zone (blue ellipse on the chart below). The Stochastic seems to have worked off the overbought condition and is now back in the oversold zone - a good place from which to launch a rally. To top it off, we got a nice little candlestick reversal today. If we can rally through last week's highs, we could reach the 'real' resistance for this market. That lies at around the 4500 - 4550 level. On the flip side, keep an eye on yesterday's low (4145). A close below that low will indicate lower prices to come.

All Ords hits first resistance

The All Ords today hit the first resistance level at around 4360. I see 3 possibilities from here. The first is that we have a brief pause for another day or two before resuming the move up - to at least the second resistance (blue ellipse - which by the way, moves down as the days pass). The second possibility is that we now correct the move up from last week's low. This could involve a move down of at least 200 points. The third possibility is that we now resume the down move and retest last week's low. For what its worth I favour the first possibility but if we don't get a new high this week, that would be cause for concern. Now, if we do get a new high, the big problem is that we will reach serious resistance fairly quickly. 4450 on the All Ords is the 50% retracement level of the move down from the April high to last week's low. I suspect that the area between 4450 and 4550 is going to be very difficult to break through.

'People are dumb, panicky, dangerous animals'

One of my favourite films is Men in Black. In case you don't know, it's about men dressed in black suits who secretly protect the Earth from aliens. In the film, the new recruit (Will Smith) asks the veteran why the government doesn't tell us about aliens. He says: 'Why the big secret? People are smart. They can handle it.' The veteran played by Tommie Lee Jones replies: 'A person is smart. People are dumb, panicky, dangerous animals.' The past week in the stockmarket proved Jones to be correct - at least in so far as panicky and dangerous goes. Whether the hordes of sellers also turn out to be dumb remains to be seen but it reminds me of the advice that a successful orchardist gave my father many years ago. At the time, the area was in the grip of a serious downturn and many orchardist were pulling out their pear and apple trees and selling off their land but the successful orchardist was planting new trees. When dad asked him why, the orchardist replied: 'When everyone else is panicking and pulling out their trees, that's the time to start planting'. Anyhow, here's today's chart of the Dow. The support level that I alluded to in the previous post lasted just one day and triggered a rally of just 62 points. Last night, the Dow landed on more substantial support at 10600. This triggered a more substantial rally. Whether that support now holds remains to be seen but the Aussie market and many large cap Aussie stocks have made strong reversal patterns on the daily chart. If 10600 does not hold on the Dow, the next support level is 9500.

Dow lands on support

It was a massive drop on Thursday on the Dow but it has landed right on a support level at around 11,380. We could see a bounce here, possibly to the June lows of around 11,900. If the Dow bounces, the All Ords should also bounce. The first resistance on the All Ords is around 4400 with more significant resistance at 4500 - the underside of the June-July lows.

Spectre forms of further falls

The higher low and lower high observed on the daily chart that I alluded to in the last post looks like a pennant on a weekly chart of the All Ords. Such consolidations sometimes form mid-way in a trend. A fall out of that pennant would indicate that this decline could reach 4200 (XAO). It is of course by no means certain - a reversal here is quite possible - but it is looking increasingly likely that in 2-3 weeks time the All Ords will be at around 4200. A close below the lower trend line on the pennant should act as a trigger for further selling.

'Big black' points to rocky week ahead

We have seen this pattern several times in the past few months. The market starts a promising rally and then reverses sharply with a big black candle i.e. a candle which opens on its high and closes on its low.  The close today below Friday's low on the All Ords indicates that further falls are likely this week. What's also happening now is that the market appears to be 'winding up'. This is evident from the higher low and lower high recently formed. Such 'winding up' is often followed by a sharp move. Which way that will go is not yet evident but the simple fact is that there are no weekly signals pointing up and as of today, the daily signals are pointing down including that the Stochastic is now in overbought territory. So I would have to say that the evidence favours the bears and that at this stage the only thing the bulls can rely on is hope.

Bullish signal on All Ords

It looks like the market has 'drawn a line in the sand' at around 4520 (All Ords). Today's price action created the '3 River Morning Star' candlestick reversal pattern. With the Stochastic only just starting to rise, this seems like quite a bullish signal. The first potential resistance is the downsloping line joining the 2 ellipses shown on the chart below. If the market reaches that point it will be the first time in the decline from the April high that the market has tested that '2nd' ellipse resistance. If it breaks through that resistance, it will be the first sign the market wants to go much higher. It is also at around that level that I expect the XAO Indicator to turn blue again.

All Ords signals an intent to reverse

Having held at the support level of 4560, the All Ords made a potential candlestick reversal pattern Thursday - an "engulfing bearish" candle. A positive opening on Friday (particularly taking out today's high of 4584) would indicate the market is attempting to mount a rally possibly to around 4750. A close tomorrow below today's low (4537) should mean lower prices next week. A close below the June 27 low of 4508 would be particularly bearish.

All Ords finds potential support at 4560

4560 on the All Ords seems like a good level for shorts to take profits landing as it does right on the ellipse support. It might just make another attempt to rally from here. If it does the target would be around 4750 before it hits resistance again. Clearly though the bias is to the downside and the proper view of any rally is that it probably won't last and that ultimately we will test the late June lows - at least.
Today's price action is not a candlestick reversal pattern so there is no candlestick support for the above view although some large cap stocks I follow like BHP and ANZ did make potential candlestick reversal patterns today. On BHP for instance, a close tomorrow above yeterday's high of $43.91 would indicate a resumption of the rally.

Dow makes potential reversal pattern

The forshadowed resistance on the Dow (12,750) is holding - so far. Friday's pattern (Harami candlestick) indicates a potential change in trend. A new closing low on Monday on the Dow would probably confirm a reversal (of some kind) of the current uptrend.
     On the All Ords, although the chart picture is different, the signal we are looking for is similar. The All Ords is now right in the first level resistance (yellow ellipse). That ellipse has turned back rallies 3 times in the decline from the April high. Friday's low on the All Ords is a key. A close on Monday below Friday's low (XAO 4675) would likely spell the end of the current rally. If that were to happen, we will probably see a second candlestick reversal signal form.

Will resistance continue to hold All Ords?

The All Ords continues to hover around resistance but is not falling. A close above 4687 (XAO) Friday or Monday would invalidate the candlestick sell signal of a couple of days ago and the All Ords will then probably head for the next resistance at around 4800. Last week, the weekly chart confirmed a candlestick reversal pattern so it's possible we have started a new significant up trend. In the meantime the foreshadowed resistance on the Dow does not seem to have held. Breaking through the ellipse resistance signals higher prices on the Dow although it will first have to get through signficant resistance at around 12,750.

All Ords, Dow right on resistance

The All Ords is right on the first level of resistance after a handy little rally. Those who bought in at the lows in late June have obviously been taking profits at these levels. The All Ords has now made a candlestick reversal pattern on the daily chart, so it should now turn to correct the rally. If it keeps pushing up though, it should find greater resistance at 4800 (XAO). However, if it does turn here as it is threatening to do, it could one of two things. The correction could be quick before it turns to strive for the next resistance level at 4800 or it could continue down to test the June lows - and beyond. We should know over the next couple of days.

The Dow is also right on resistance but the support for any correction on the Dow is not that far away at around 12,300.

Another reversal pattern forms on All Ords

On the daily chart, today's move confirmed the bullish harami candlestick pattern which formed yesterday. We now have in place the most promising signs yet - since the decline began in April - that a rally is about to take place. The weekly chart is also shaping up to make a reversal pattern - a close on Friday above 4566 (XAO) would probably confirm a weekly candlestick reversal has taken place. Before we get too carried away, we should keep in mind that the most likely outcome of a rally is that it will not last. Reaching 4,800 (XAO) however, is certainly a reasonable prospect. What is also likely - looking from this vantage point - is that after that, the decline will resume and the market will fall to new lows. What would negate that view would be a rise above 4890.

Resistance at 12,200 proves too much for the Dow

The 12,200 level was the first real test for the rally from the recent lows - and it failed. The Dow now needs to hold at 11,800 or we might see a further 700 point decline to the next support of 11,100.

Homing pigeon points to possible reversal

The homing pigeon is a candlestick pattern similar to the harami (inside day). Such a pattern appeared on Friday on the All Ords. An up day Monday is needed to confirm the reversal. Whether that then turns into an up move of substance is not evident at the moment. The first thing we would need is an up week and then confirmation of a reversal on a weekly chart. Then the XAO Indicator might turn blue again.

Dow approaching support

IMO the Aussie market is ready to rally but unfortunately the US market isn't - yet. And until the Dow stops falling we probably won't be going up, we may even fall further. But, if the ellipse study on the chart below proves accurate - and it usually is - then the bottom in the Dow could come this week. It is right on a support of sorts (MOB) right now but the ellipse support is a little lower. That ellipse also happens to coincide with a trend line which starts back at the March '09 low.

Strangely enough, another reversal sign appears

I know it's odd, but even though the market fell 30 plus points today, the pattern formed is actually interpreted by some as a reversal pattern. In candlestick terms it's referred to as an 'engulfing bearish pattern' - a black candle which completely engulfs the 'real body' of the previous white candle after an extended down move. This is seen as the bears' final attempt to drive the market lower. They probably have their stops set at today's high (4649 on XAO). My guess is that if today's high gets taken out you will see some short covering which could turn into a sharp rally. More likely than not, any rally will be short lived.

The 'hope meter' rises

Yesterday's post offered the bulls a tiny bit of hope with the suggestion that the market might find support at around 4625. After today's price action, I am going to move the 'hope meter' up a few notches. In candlestick terms what we got today was a long-legged doji (almost a dragonfly doji), i.e. a candle which opened and closed at the same level and near the high with the low a long way away. This is considered a reversal pattern in its own right (albeit of medium reliability). What would make the hope meter rise even more would be a gap up on the open tomorrow and a higher close or a healthy 'up day' with the close well above the open. Then we could say we have a bottom in place - all the while keeping in mind that we are in a down trend and the trend stays down until the weekly chart reverses. Hey, but that reversal has to start somewhere, doesn't it?

Here's a tiny bit of hope

I have been looking around for some hope for the bulls and I found some. In the decline from the April high, every time the stochastic indicator moved under 12, the market bounced. When the stochastic gets to those levels it's not a bad time time for the shorts to take profits. But the most you can hope for - at this stage - is a 'profit taking' bounce. Also, at around 4625 (XAO) there's a MOB (make or break) support level. That generally means that if the market does not hold at that level, you will probably see lower prices. But it can also mark a turning point. Now, any bounce we might get here (repeat 'might') should be viewed with suspicion. Obviously sooner or later we will get the real deal but personally I will be looking for confirmation on a weekly chart before I would be calling this decline over. (On a weekly chart, the closest MOB is at 4460 on XAO).

Market stalls at first resistance again

Its now the third time in the move down from the April high that a rally has stalled at the first resistance level. The downtrend has well and truly resumed and its anybody's guess where it will end. If the Elliott Wave picture on the chart is correct, then we are headed for new lows. For now all we can really do is stand aside and let the bear roll on. When its ready to stop, the chart should tell us.

So far so good but bigger trend is still down

The odds are increasing that we have seen the bottom of the market but we can't lose sight of the fact that we are in a solid down trend. The ellipses shown on the chart below show the potential resistance levels for the current rally (about 4850 on XJO XAO (apologies)). They accurately predicted the top of the most recent rally on May 19 (see post of that day). In fact the ellipses are regularly accurate. There's a saying "the trend is your friend - except at the end". So the ellipses should continue to be accurate except when the trend is changing.  I have mixed feelings about this market. The gut tells me that we have seen the worst but the mind forces me to look at the chart and it points to one more attempt at the recent low. For now we will enjoy this little ride and keep both eyes open for a potential brick wall ahead.

Searching for a trend change

The stockmarket has reversed its daily trend but until the weekly chart makes a reversal pattern, the main trend remains down. All major stockmarkets show a similar short term pattern - i.e. the potential of a trend change but none have confirmation from weekly charts. The exception is the Canadian stock market. It's weekly chart turned up two week's ago and last week continued the upward trend. That's good news for our commodities laden market. So is the weekly chart of the CRB Index which made a reversal pattern last week - see chart below.

Reversal pattern forms on All Ords

The market formed a neat reversal pattern today - a variation of the candlestick Piercing Line pattern. What is particularly attractive about the pattern is that today's close exceeded the highs of the past 2 days - and pushed above the pivot low formed on 16 May. A close tomorrow above today's high would confirm we have some kind of bottom in place. A danger sign would be the market falling below today's low. Taking out yesterday's low would be downright bearish. Let's see if we can build some sort of rally from here.

Market resembles May 2010

Today the market resumed its decline just as I feared in my last post. The question now is where will it end? The market action so far from last week's low bears an uncanny resemblance to the market action in May 2010 - especially in the week following the low formed on 7 May 2010. If the similarity continues, we can expect two things. The bad news (for the bulls) is that we can expect lower prices - maybe substantially lower. The good news is that if we follow May 2010, then a significant low could come at the end of this week. If we do get a low, we should also get a reversal pattern. If I see one, I will let you know.

Oops, market stalls at first resistance

It took a 'bullish harami' to turn around the recent decline and now after only 3 days of advances, a 'bearish harami' (inside day) threatens to stop this little rally in its tracks. If the All Ords closes below today's low on Monday, I'm afraid that we will need to treat that as a resumption of the decline. New lows would not be out of the question if today's low is breached. My guess for a target is around 4690. If today's low holds and the market closes on Monday above today's high, then most likely the market will keep moving higher.

To illustrate my point I am posting 2 charts, one is the current chart of the All Ords and the other shows the All Ords as it stood on 31 August 2010. In both charts the decline was stopped by an 'inside bar' - a 'bullish harami'. In both charts, the bullish harami was confirmed the next day. In both charts, the market rallied for 3 days and then formed a bearish harami on the 4th day. On 1 September 2010, the market powered on up after taking out the high of the inside bar. This time I think it will be different mainly because in September 2010 the rally took out the previous pivot low (shown by blue arrows) but this time it hasn't. Also this time we are in a more significant downtrend (as illustrated by the red bars). By the way, if the market does fall, it could coincide with a timing prediction I saw recently which pointed to a May 26 low. Well, we will find out soon enough. Click chart to enlarge.

US market confirms reversal

The S&P500 futures produced a clear reversal pattern last night - a 'three river morning star' candlestick pattern. It is composed of a white and black candle with a star between them. See diagram to the left which also shows the past three days price movement on the S&P. This signal is usually very bullish so its reasonable to expect at least some follow through.

Our own market followed through nicely today, but the thing to remember is we are still in a downtrend (XAO Indicator is red) so we should probably continue to view this as a bear market rally. That rally has now reached the first resistance level. The next one is at around 4890. If I see signs of the rally becoming exhausted I will endeavour to post about them here. 

All Ords shows signs of a rally but not the Dow . . . yet

The All Ords has finally made a reversal pattern. In Japanese Candlestick language it is called a 'Bullish Harami'. In our language it is called an 'inside bar' - that was yesterday (a lower high and higher low than the previous day, preferably both a lower open and close than the prevous day's open and close). The confirmation of the potentially bullish reversal came today when yesterday's high was surpasssed. The market should now rally but a fall below 4718 (Monday's low) would spell further trouble.

The 'Big Aussie' (BHP) also made a reversal pattern yesterday and confirmed it today. In 'Western' technical analysis it is called an island reversal (apparantly gets its name from the analogy of a boat reaching an island, unloading quickly and leaving immediately). BHP's reversal pattern is more persuasive but of course nothing is guaranteed. See chart below.

However the Dow has yet to make a reversal formation. That may come tonight. We don't always get a nice, neat reversal pattern at turning points so the US market could possibly rally without one but I would be a lot more confident of our market if the US also makes such a pattern.

Trend is down but a bounce is due

Having now retraced 61.8% of the rally from the March low to the April high, a bounce seems due. The stochastic is rising and the 61.8% level often provides good support. Friday's price action also tells me there is some interest in a rally starting at this level. It's risky trying to pick a bottom, but if we can hold Friday's low on the All Ords (4754), we could see more buyers coming in and taking this market higher - probably back to at least 4900. A close above Friday's high would confirm that view. However, any rally should probably continue to be seen as a selling opportunity - that is until we see some serious evidence that this correction is over.