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