Market focus, Feb 15, 2013

The Art of Watching (July 2012)

The Art of Watching (July 2012) (Photo credit: skippyjon)

XJO meets a market cross-road

Arguably there is never a time when the market direction can be taken for granted.

However there are times when future market direction is more difficult to pick than usual.

The market reached such a cross-road intersection this past week with the XJO confronting important technical resistance  at 5000 for the third time.

With a corrective move long over-due, and the interim reporting season starting, one might well have thought that the index would turn lower back into the long-term trading range.

On the other hand there had been an extra-ordinarily strong bullish move of the index in two legs from July 2012. This impulsive move this week carried the index decisively through the 5000 barrier to 5054.3

  • The first leg from 4000 to 4585, was 585 points over 16 weeks, at an average of 36.6 points/ week.
  • Next there was a sharp sell-off over the following 4 weeks (Oct/Nov) of 247 points for a 42% retracement.
  • The second leg since November has been even stronger, from 4334 to 5054, at an average of 60 points per week. Only one of the past 13 weeks has been negative.
Doji candlestick on Daily chart, warns of possible short-term trend change

Doji candlestick on Daily chart, warns of possible short-term trend change

Market uncertainty to continue this week

One cannot assume that the current trend higher will continue without pause.  In fact the short-term trend may be about to change.

The candlestick appearance for the last day of trading February 15 took the form of a Doji where the open was 5036.9, and the close just 3 points lower at 5033.9. This is often a harbinger of a corrective move, or at least of a pause in trending.

The RSI indicator has been in the over-bought zone for most of the past three months, and at market close was 80. This position is not sustainable for long.

There are also non-technical reasons to expect a pull-back.

  • Some stocks such as CBA and CSL are at record highs; profit-taking could be expected.
  • A number of stocks are due to go ex-dividend in the next week or two.
  • The profit results of some stocks will inevitably disappoint the market
  • Some analysts consider that further growth within the banking and retail sectors may be limited.

Even if there is a market correction in the next week or two, this is likely to be seen as a buying opportunity limiting the down-side to support at the 5000 or just below.

Weekly XJO  still trending higher

Weekly XJO still trending higher

Categories: Chart Analyses, Technical Analysis

Tags: , ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: