Wednesday, 17 October 2012

Three reasons why the ASX 200 is headed to 5000

I think there are three good reasons why the ASX 200 is headed for a test of 5000 or so.

Reason one is that a move to 5000 would closely mirror the likely move by the US S&P 500 to test its all time high. From current levels, the S&P would have to rally a little over 8% to test its all time high, while the ASX 200 would need to rally around 10% to hit 5000.

Reason two is that the ASX 200 is trending upwards, having recently broken resistance around 4450, and the next higher significant resistance level on the weekly chart is around 5000.

Reason three is that 5000 is just beyond the measured target for the big Cup and Handle pattern breakout on the daily chart shown below. The measured target for this pattern is calculated by adding the height of the Cup to the breakout level. So approximately 4410 + 430 = 4840. Please don't confuse this Cup and Handle with the smaller one I labelled last weekend. The Handle shown on the chart below consists of a (smaller) Cup and Handle, as per the weekend post.

S&P 500 headed for test of all time high?

First a look at recent action, mostly just for the record, as every blogger and their dog has been posting about the S&P's recent trend line bounce.

If (if) the S&P can break this years high, it will be spitting distance to the 2007 all time high. So close that not  re-testing that high would be almost inconceivable. Though as I have been known to say, the markets surprise me very often. For the record, a rally to test the all time high would take a move of just over 8% from the current level.

AUD/USD forming a triangle since mid 2011?

EUR/USD headed for test of trend line drawn from 2011 high?

Gold rallies from test of trend line drawn from key lows of early and late 2011

Gold is now rallying from a test of the trend line drawn from the key lows of early and late 2011. Huh? Why look at that trend line, when there are a bazillion other trend lines you could also draw if you used your imagination. We'll zoom out in the second chart and you'll see why.

Zooming out shows that the trend line described above also happens to be the mid channel line of the bull run from mid 2005, which several times in recent years has been a launching pad for moves toward the upper reaches of the trend channel.