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.