In my notes after the Christmas break I said, “would love to see the S&P rally to about 2600.” Well we have obviously exceeded my target by quite a nice wide margin even though at the time that target did look overly optimistic. I have been of the view that stock markets around the world were forming upslanting wedges during the rally of the past few weeks. Most of the indices are still in the process of forming these patterns. I think this week will end badly.
I feel sure that in years to come, students of technical analysis will look back at the patterns formed over the past couple of years and marvel at what perfect top patterns were formed. Yes – I might be wrong and the market will continue to surprise us on the topside.
Time to check in on my old friends the Geniuses – their participation in the market has risen from 31% in mid December to 75% as of mid last week. This figure is the highest since……the beginning of October when the S&P topped. This on its own is not enough to call the top of the rally but is certainly something that should be kept clearly in focus.
And then gold – only on Friday I was starting to get a bit concerned and said “I have been watching carefully as so often gold has a nasty little habit of having a sharp sell-off right before it has a decent advance. Just keep this in mind.” Well we certainly had a nasty little sell-off on Friday. Was this gold just doing its usual of encouraging everyone to leave the bus right at the wrong stop. I have seen it so often over the years. At this stage, I think that is what it is – just the cruel nature of markets. Looking across other commodities, I am still thinking that crude could be forming a base pattern and I am interested in the patterns formed in the markets such as copper, zinc and tin. Trying to work out why I should be getting encouraging patterns on commodities but very worrying patterns on stock markets. Normally they would sort of move together. Nothing seems to be easy to think through at the moment. As usual comments welcome as we try and work through this conundrum.
So, what does it all mean for us poor little investors/traders right down here at the bottom of the world? Well unfortunately I think we are forming an upslanting wedge as well. I gave a target of 5900 at the beginning of the year and revised that target to 5850 to 5900. Well that target has been met but as with everything at the moment markets are overshooting targets. Perhaps time to look at a chart that is being overlooked – XNV – which is the inverse of the XJO. Here we have a perfect, and I do mean perfect, downsloping wedge obviously the opposite to the index but because it isn’t attracting so much attention by every analyst looking at the Australian market, I tend to find its moves just that little bit more reliable. A break-out of that wedge will signal the end of the rally in our market.
In the meantime, we are getting some fabulous moves in the miners at the bottom end of the pile. So many of the little base patterns that attracted my attention over the past couple of months are leading to sharp advances. Just don’t get caught on the spikes.
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