Market Focus, April 19, 2013

By Kenneth Robson on April 22, 2013 • ( 0 )

Trending replaced by increased short-term volatility.

Last week

The previous week concluded with an emphatic rise in ASX 200 share index to finish above the important 5000 threshold at 5013.5 creating an expectation that upward trending would resume. This did not happen. Instead there was an 81.6 point fall in the index over week with the index closing at 4931.

Dips in the index to support at about 4900 seem to be brief. and to bring in buyers, suggesting that the market is in a side-ways trading range between 4900 and 5020.

How can you make money in this market? Traders seem to have found a solution by trading short-term volatility. This week there were three down days with the biggest fall of 80 points on Thursday April 18, a day in which resource stocks were dumped unceremoniously.

Adding to market uncertainty for the week was the precipitate fall in the price of gold. This has been unnerving for investors who were relying on gold for its stability, looking on it as almost an alternative currency to hedge against inflation. The week has seen market participants taking time to digest the implications of the fall, and how to respond. This uncertainty was reflected in the “spinning top” appearance of trading on Friday April 19. Within a trading range such a Japanese candlestick appearance is neutral in implications for the coming week.

A cautious rebound in the gold price.

The coming week

At present the share-price is locked into a trading range between 4900 and 5020. The expectation is for more side-ways movement with day-to-day and intra-day volatility that traders may be able to exploit.

Such a trading range must end sooner or later with the index breaking out in one direction or the other. One might expect that break-out would be more likely to occur to the upside since that was the direction of the previous trend, but this cannot be taken for granted.

One should point out that often support or resistance is broken first in one direction, before trading reverses for an emphatic breakout in the opposite direction.

Gold is likely to continue to rebound for the present. An important observation to make is whether the gold price continues to bounce to exceed the last peak at 1590. Reversal before this would make a lower peak and herald the onset of a down-trend. This would lead to still lower prices.

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