Technicals | Dec 06 2024
By Daniel Goulding
With the S&P/ASX 200 (ASX200), Australia’s benchmark share market index, on the cusp of breaching 8500, the risk-reward profile is now skewed to the downside.
Earlier this year when the ASX200 was around 7600 points, I wrote the following:
The ASX200 will likely breach 8000 this year and could head as high as 8500 to 8700 Eventually the index will return to current levels by late 2024 or 2025.
[A New Bull Market For The ASX200, FNArena, 01 February 2024].
The initial part of this forecast has come to fruition, and the technical evidence suggests that the second part is also likely to materialise.
Exhibit 1 compares the ASX200 with the Composite Advance-Decline Line (A-D Line).
The A-D Line measures the cumulative total of stocks that are advancing (closing higher) minus those that are declining (closing lower) on a daily basis.
This metric is a strong indicator of the overall health of a market trend. The more stocks that participate in the upward or downward movement, the greater the likelihood that the trend will continue in the foreseeable future.
The AD Line peaked on October 21. With fewer stocks participating in the market advance, the market is swimming outside the flags and risks being caught in an underlying rip current.
Wave Structurehow various market advances and declines relate to one another from a psychological or quantitative viewpointsuggests the same conclusion. The price action since late 2023 is consistent with a NEoWave Contracting Triangle, a price pattern comprised of five corrective segments or waves.1 2
Exhibit 2 illustrates the current price pattern and the expected trajectory for the ASX200.
The current market advance, designated 23WC3, appears to be in its final stages.3 Short-term Wave Structure suggests the peak could occur in the next few trading days, possibly as high as 8643.
The forthcoming wave, identified as 23WD, is expected to start soon and will likely retrace most, if not all, of the previous advance. The target range for 23WD is projected to be between 7500 and 7700 over the next four months.
Caveat emptor!
Disclaimer: I have started selling non-core holdings. I will be hedging the remainder of portfolios associated with me on any additional strength going forward. I expect to take profits on levered longs and go short the ASX200 in trading accounts next week.
Daniel Goulding is a technical analyst with over 20 years of experience. He is the publisher of The Goulding Letter on Substack and, previously, The Sextant Market Letter. His Twitter handle is @CopernicusASX. He previously worked as an Authorised Representative of the Townsville branch of RBS Morgans, and later Grow Your Wealth Financial Services Townsville.
This material was prepared by Daniel Goulding and represents the views and opinions of the author. It does not constitute investment advice. My work is didactic in nature. You should consult a licensed financial adviser if you require professional assistance with your portfolio.
Footnotes
- NEoWave stands for Neely Extensions of Elliott Wave.
- At the core of Elliott Wave and NEoWave is the belief that financial time series are not random but instead exhibit self-affine characteristics. Self-affinity refers to a condition of fractals where a shape appears similar at different scales, although it does not maintain exact proportionality across those scales. This means that while the overall structure remains consistent, the finer details may vary. Both local randomness and global determinism coexist in this framework. In economics, this perspective is captured by the Fractal Market Hypothesis, the main contender to the Efficient Markets Hypothesis.
- 23WC is the terminology for Wave-C of the price pattern that commenced in 2023.
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