XAO Indicator turns red again

XAO Indicator turns blue

No change to XAO Indicator

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.