All Ordinaries Rebounding
Chart of the Week 28 May, 2010
Stock Resource produces two research reports each week – its flagship Research Report that is based on fundamental analysis of companies and is published each Wednesday and Charting Perspectives, a technical analysis report that is published each Thursday. Charting Perspectives studies the forces that drive share prices, and by monitoring buying & selling relationships the chartist is able to identify trends and patterns, using them as a guide for the likely future direction.
Charting Perspectives is prepared by the highly regarded technical analyst Regina Meani and the following snapshot outlines Regina’s current assessment of the forces driving the All Ordinaries Index.
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On Friday May 21, the All Ordinaries Index produced a key reversal day. The index gapped down on the opening and fell another 3% during the day, only to rebound and close on its highs. On Monday the index gapped higher – confirming Friday’s action and signalling a rally.
Unfortunately the action only has short-term significance and by itself cannot support a more substantial recovery, but gained some weight from its staging area. The rebound resulted from the combination of extremely oversold momentum and the achievement of a downward move. When the index reached 4200 it was inline with the similarities to the 1976 correction when the market fell 17%.
So far the action has been positive, but while the shorter-term momentum is rebuilding the medium to longer-term outlook remains uncertain and the history also reveals a resemblance to 1994 when the index fell 21.5%. As the index attempts to rally it faces significant resistance in the 4450-4500 area and then more importantly between 4650 and 4750.
While the market remains vulnerable to the after shocks from domestic and overseas events the danger remains that another wave down could bring the index more inline with the 1994 experience and would equate a drop to the 3800-3900 support range.
