Directionless Markets
Chart of the Week 19 Aug, 2010
Stock Resource combines two disciplines in its research – fundamental analysis of companies and economic data, plus technical analysis or charting. Charting 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.
With equity markets displaying elements of uncertainty we reproduce the latest thoughts on its overall direction from our highly regarded technical analyst Regina Meani.
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The Chartist’s Perspective
All Ordinaries Index (4504) – Reflecting market uncertainty
As we have suggested in our previous market comments, the last in early July, there have been marked action similarities for the market to the late 1970s and the mid 1990s when the index suffered volatility before resuming the upward path.
When the index reached through 5,000 in April it tested a significant barrier and failed. The subsequent downswing saw the index fall to 4194 on May 21 where it preformed a one-day reversal, promoted from the combination of support around 4200 and a momentum change. The market rallied but has been unable to break resistance in the 4600-4650 area, swinging back down to support early in July. Rebounding from the 4200 area the index again approached the 4600 level but pulled back to 4400 to seek support. The fact that the index has bounced from a higher benchmark is encouraging but there is not yet enough evidence to suggest that a stronger recovery is supportable at this time.
The action from May has formed in a triangular fashion which is a reflection of uncertainty and the risk remains high that a break below 4200 could issue in a final sell-off for the index towards the 3800-3900 area in line with the deeper correction experienced in the 1970s. To rule out such an action the market would need to rally through its recent barriers around 4600 and then more importantly at the 5000 mark.
‘The Chartist’s Perspective’ has been independently derived by Regina Meani from charting and technical assessment, and has not taken into account fundamental analysis of the market.
