Summary for Week Ending 1st October 2005
So far we are still looking at a Flat corrective pattern. Last week I mentioned that the market appeared to out of balance and this would require the market to either correct the sudden downwards slide or it would go sideways. Either way time had to be absorbed so that everything could get back into shape.
Looking closer this week we can see that the market traded the same price for the first 4 days of the week, with Thursday putting in a wide range outside day finishing to the upside. The point of resistance should have been the previous swing low (1225), and this did not hold the market at or below this point. If it had, and looking at the previous wave down, then we would have had an air-gap swing pattern to the downside which would have been a primary market of the beginning of a very fast move down. However, as I said, this did not happen and the market cut into the range of the previous swing, giving us a compression pattern. Friday was a bit of a whimper of a day, but following from Thursdays big day out, this was not unexpected.
From a fundamental perspective, what needs to be looked at is the effects of Oil on the western economy. For the past decade at least, inflation has been under control but the rise in Oil will put pressure on almost all aspects of the economy. It is starting to bite here in Australia with consumers being warned that prices are about to rise in response to higher production and transportation cost. If this pressure continues then this will also put pressure on wages growth to compensate and the overall effect is inflationary. Central banks usually use interest rates as a blunt instrument when tackling inflation as it has a habit of weakening demand ( that is of course if the punter are already scared).
Looking at this weeks chart I have highlighted the possibility of a range equality decline. As can be seen it lines up quite nicely with the 50% retracement level which should be a primary point of support. Do I think the trend line will hold? If we see a strong rise this week then I would go to the bullish side of things but any sign of weakness and I believe that the trend line will be taken out. If this does happen then this weeks chart shows where I think the next rest stop will be.
|
