Sunday, 1 January 2012

What lies ahead for the ASX 200 in 2012?

That's a trick question. Nobody knows the answer.  Referring to the long term chart of the ASX 200 shown below, I will map out four possible scenarios for the coming period.

1) What is beyond question is that the bull market of the 90's and 00's is finished. The bull market up trend line 1 was broken to the downside in 2008 and again in 2011. Currently the market is trending down within the channel formed by trend lines 2 and 3. If this continues then the market will move lower through 2012, and we could see the ASX 200 reach the low 3000s.

2) If the market breaks below trend line 3 we may see an acceleration of the down trend, targeting trend line 4, and we could see the ASX 200 reach the low 2000s.

3) If the market breaks above trend line 2 and especially trend line 1, then we could position ourselves for a rally and perhaps a new bull market.

4) The above scenarios assume that the market will be trending. The reality is, the stock market trends less than half the time. Given that we saw a strong trend for the best part of two decades, we could see a choppy, broadly sideways, range bound market for many years to come, perhaps between the 2009 low and 2011 high, or perhaps within a wider range. 

We will have to wait and see what path the market chooses to take. Regardless, if we keep our eyes open and our egos in check, the charts will provide us with many good trading edges as 2012 unfolds. Watch this space.