Global market falls in the wake of Cyprus sovereign debt re-ignited fears of reversion to bear market mentality that prevailed between 2007 and 2012. Here in Australia the XJO fell by 102 points to be 5027. just above the 5000 support level.
This support could be tested in trading the rest of this week. The market response will be a test of the strength of the bullish mentality that emerged in the 2nd half of 2012, and has continued on into 2013.
This fall yesterday rekindled all the old bearish fears for traders, fears of the market plunging again to around 4000 points, and wiping out all the gains of the last 12 months.
Fear of the unknown is often responsible for investors making poor decisions.
Ffor this reason it is worth looking at how the market might respond in the next few weeks.
On the Daily Chart there has been a 3-4 month impulsive move higher from
- a low of 4334.3 on 16/11/2012
- to a high of 5163.5 on 12/3/13
The last month this move has plateaued to be trading in a trading range between 5000 and 5150.
Direction will become evident if there is a break-out from this range. The likelihood in the present circumstances is for a break-out to the low side, i.e. through 5000 support. Otherwise the expectation is for trading to continue in this range.
Should this happen, one would expect between 33% and 66% of the previous impulsive move would be eroded, with clustering about the half-way mark.
Fibonacci retracement lines provide targets to monitor for investors.
- the 38.2% level is at 4850
- the 50% level is at 4750
- the 61.8% level is at 4650.
If 5000 support is penetrated, a possible strategy is to sell some long positions to re-purchase them more cheaply at a later date.
- Cyprus bailout deal rattles investors around the world (business.financialpost.com)
- Local market takes hammering amid Cyprus fears (abc.net.au)
- Top News: Cyprus bailout crisis sends shockwaves through eurozone – live (guardian.co.uk)
- Cyprus – Initial Market Reaction (financialsurvivalnetwork.com)
- The Cyprus Chill (advantfinance.wordpress.com)