Summary for Week Ending 22nd January 2005
Last week I was outlining the scenario of what happens when the market sucks everyone in and then reverses. There was an interesting example of this on Tuesday when we saw the market rally strongly beyond the previous swing high. The last rally only managed to last 1 day before succumbing to the downwards pressure so based upon recent history it would have been very brave to look bullish based upon a single days movement. If you were a breakout trader, that is trading on breakout above and below previous levels, then you would have gotten creamed on this one. The markets recent history was saying that it only had one day in it, and so when it rallied again for just one day, then the market was back in danger again, and would have required another day forward to eliminate this pattern. We didn't get this, and instead we saw the market melt over the next 3 days to strike a new low and finish on its lows for the week. This tells us that its better to watch what the the market has been doing recently to get a gauge on its current psychology. It may not make you money, but it may keep you out of potentially loss making situations.
Looking at this week chart, we can see the market is approaching the all important 52 range which would indicate a low of 1166
. It is also approaching the level of the previous major high of 1163, another level of support for this movement. Its has already passed through the 38.2 % retracement level and should none of these hold then the most likely stop over will be the 50% retracement level at 1154, although this is an outside chance at the moment. With the strong movement down in the last three days, there will be plenty of punters looking to be short, but the smart ones are probably in and out by now, so a short play now would be just a tad risky. With the market swinging wildly at present, prudence is probably the best tactic.
In the coming week I would not be surprised to see the decline stop and take a short rally, just to clean out the shorts who took the punt over the weekend. Longer term, I think things are going to be very boring this year,
Just a note on the All Ords here in Australia. Last year I said that the 23rd of Jan was a date to watch, should the market run up into it. Well it hasn't, and in fact the market has been dull at best since the New Year. The 18th Jan put in an outside reversal day and the market has dutifully been crappy ever since. A significant lower top would put this at risk in the short term. Worthwhile watching how many days it can rally before dying off again.
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