Saturday, 21 June 2014

ASX 200 up trend from the 2012 low is finished

The weekly chart shows that the up trend from the 2012 low is finished, with the market having closed below the up trend line two weeks in a row. The wedge shape of market action since early 2013 warns of a downwards reversal. Likely this market will not accelerate lower unless the US market stops hitting record highs, but the long term S&P 500 and Dow charts suggest a big top is imminent there. The ASX 200 will likely lead to the downside in any global stock rout, as it has been relatively weak since the 2009 low compared to markets of most developed nations.

Chart includes after hours trade.

AUD/USD recent bullish headlines hint at a turn lower, testing trend line resistance

The mainstream non business press has prominently featured bullish AUD headlines this week (one example being Fairfax's "RBA has lost fight for lower Australian dollar"). 

Bullish AUD headlines are often an indicator that a near term top is either in or close. Why? It's a matter of simple logic:

1) The press run with stories that people want to hear, so that they can sell more newpapers and gather more clicks.
2) This implies that many people want to hear that the AUD is going up. 
3) This implies that most market participants are long.
4) If most market participants are long, the number of remaining potential buyers for the AUD is relatively small.
5) If there are few remaining potential buyers, the next action by most market participants must be to sell, either to take profits or to short sell. This will drive the market lower.

GBP/USD testing key long term resistance at 2009 peak and 2005 low