I’ve set out below my thoughts on the overall market in response to a request from Pisces today on the XSO Thread. First up I have to acknowledge that looking at the charts tonight I’ve changed my view on the outlook for the Australian market from earlier today and the past few months. That’s why HotCopper is good for my trading in that it makes me go back and properly study my charts to do a post. Some thoughts:
Macquarie Bank Monthly chart. This post is about the overall market, but I see MQG as a proxy for the market at this point and simpler to analyse. I’ve reposted below a MQG Monthly chart from the 19th April in the above thread. Further comments on it if you go back to that post. But key thoughts then were that it looked more like the top of a Wave B, i.e. the peak before a bear market Wave C (shown dotted black). Nevertheless, two scenarios were valid at the time, with the pink line being alternative bull case. (Note ignore time or calendar dates on this chart, I was just illustrating potential price moves).
What we got was a rising flag pattern after that chart was posted which is a distribution pattern, leading to the falls of the past few weeks. Both scenario’s marked are still valid but I had been leaning to the bull case until I studied the XJO tonight.
XJO Monthly Chart. This chart below shows a similar pattern, but with a few critical clues. Wave B typical rises to 78.6% of the previous fall as shown (pink horizontal), rises up in a 3 wave zig zag as can be seen and some other things that would take too long to explain. I’ve struggled to accept this bear case as intuitively it feels like the bull market will go on, but I can no longer ignore what the big picture chart is saying. This market appears headed for a big fall into Wave C, something like the red dotted line shown.
Short Term moves. You can see the fall of the last few weeks has bounced of the 50% level of the previous major down range. This is a strong support level, but I think its just a temporary bounce. I’m expecting short term a counter-trend up. These are typically 3 weeks (+/- 1 wk) or 9 weeks (+/- 2 weeks). If it was a correction then I’d say the longer period, but if Wave C then shorter. Nevertheless as we head into September –October period we are going to get the bounce for a few weeks now and then another sharp fall.
I’m highly confident of the short term (new few weeks) bounce and then a second leg down to continue the recent drop in a Zig-Zag. The key level will be that 50% level in Blue. If that holds we can get a Xmas rally, otherwise once it breaks, then shows over from October onwards. I’m leaning towards this later scenario (as shown in red dotted on XJO chart above)
Trading Approach: My only long position is BSL options as I’ve discussed elsewhere. Otherwise I’m in cash and I’m now biased towards short positions. I’ll be holding off until the end of the anticipated counter-trend rally to say late Sept or Oct, and will short the expected market drop back down to that 50% level. After that the market can take its course. Whether it holds, finds a base and can turn up or the bigger bear market develops can be assessed at that time.
(20min delay)
