ASX 200 Daily Chart. August 10

By Kenneth Robson on August 10, 2012 • ( 0 )

Is the market getting over bought?

The current XJO uptrend first evident July 4 accelerated the past 2 weeks reaching a high yesterday of 4330 before sellers started taking profits. The candlestick appearance for the day could be labelled as almost a “Gravestone Doji”; a small real body at the lower end of a black (red in this chart) shadow of moderate length. This suggests uncertainty on the part of traders.

In trading today, sellers dominated, fueling expectations of a corrective move lower next week. The RSI indicator has been rising and at 60 is not far off the “over-bought” zone usually considered to be above 70. This indicator utilizes the ratio between the numbers of up days and down days; it may give a clue as to when the market has moved too far too fast for the present.

The expectation for next week, judged by the closing price being only just above the low for the day at 4277.3, with a fall for the day of 31 points, is for further price pull-back. What transpires will likely depend on next week’s profit results. If reasonably favourable, expect that this will be just a limited pause, and the uptrend will soon resume.