Saturday, 25 August 2012

ASX 200 is at the crossroads - important week ahead

The ASX 200 is at the crossroads. The importance of the current juncture is best illustrated on the weekly candlestick chart (log scale, including after hours trade). This past week the market rebounded lower from a test of the trend line drawn from the 2007 and 2011 highs. It closed the week's after hours trade at 4367, up from Friday's ASX close of 4349.

Zooming in to the daily chart for the period from the May high, illustrating both a trend channel and a bearish wedge. The high and low of the past week appear key indicators for the direction of the next move. A break through the low would confirm the bearish wedge set up, indicating the beginning of a swift move lower. A break through the high would send the market upwards through the weekly chart trend line, likely prompting a retest of the May high.

Lastly for added context, the long term monthly chart. If (if) the market turns lower from here, the down trend channel indicates sizeable bearish potential, with the mid-channel line offering a target of low 3000s, and the bottom channel line suggesting low 2000s. To my eyes, a new bull market at this time frame would  only be indicated by a move above the 2010 highs, so above 5000.

S&P 500 declines following false upside break from bearish wedge

The S&P 500 has declined following its false upside break from the bearish wedge, and also its false upside break above the April high. I think that this week's high and low are key to the direction of the next move for this market. Chart includes all sessions trade.

DAX turns lower from top line of bearish megaphone

That little hourly chart Head and Shoulders the other night lead to a decline. Will it continue? Nobody knows! Chart includes all sessions trade.

AUD/USD breaks lower from one trend channel, now testing support at another

EUR/USD turns lower at short term trend channel resistance

GBP/USD turns lower at Fibo 61.8% retracement and trend channel resistance

Beautiful. Brings tears to a chartist's eyes. Of course, beautiful doesn't guarantee it's gonna work as a set up... manage your risk!

Gold's August close will indicate whether or not next leg of bull market has begun

First let's look at Gold's monthly candlestick chart (log scale). August ends this coming Friday, and in my view decisions made based on the monthly chart should wait until month's end. Hopefully you have your own view and your own plan. In any case, studying the monthly chart right now tells us what to look for come the end of August.

As of today, Gold's monthly chart is flashing buy signals on two indicators. Firstly, at this time frame Gold has pushed through the down trend line drawn from last year's high. Secondly, Gold has resumed trading above the 18 month moving average following a brief dip below, which has been an effective (and rare) buy indicator during Gold's bull market. Add to that a third factor, positive seasonals - see my earlier post showing that most years since 1999 Gold has been a raging buy in June or July, with the lows of those months launching a rally in to years end.

Zooming in to the past 13 months trade on the daily chart shows that the trend line break at this time frame is currently marginal - no sure thing. The monthly close is key for those taking a long term view of the Gold market. The next week's action, leading in to month's end, will be fascinating.

Silver wrestles trend line drawn from 2011 high

Daily chart, log scale.

In case the ASX 200 bear market is ending, I recommend reading Five Minute Investing by Braden Glett

Five Minute Investing by Braden Glett was one of my trading bibles during the bull market years prior to late 2007.

It's a free 68 page e-book, describing a logical, rational, and simple way of building and managing a portfolio of growth stocks. Written in 1995, with definite echoes of Nicolas Darvas' 1960 classic How I Made 2,000,000 In The Stock Market.

It is a perfect fit for my bull market trading psychology. Have a read and see if it fits you too. Maybe it will, maybe it won't.

Here's a link to Five Minute investing in pdf format.