ASX200: More Down Before Up?

By Nick Linton-Ffrost

5250 and 5000 are still the levels to watch over the next week

After trading sideways for 20 days the question remains, has the ASX200 (XJO) formed a bottom which would indicate a bounce to 5500; or has the market carved out a bearish triangle (4th wave) which would imply a dip towards 4600?

We expect a break out of this range over the next week and slightly favour a downside move. Trading below 5000 triggers a sell while a push above 5250 would indicate a bottom has formed.

We would not be surprised to see a sell-off into the first 1-2 weeks of October followed by strong bounce. We suggest investors buy into the sell-off it eventuates.

Bottoming view (Chart 1)

• the “C” wave within the decline from 6000 has completed it’s move at 4800 where “C” approximates “A”
• bounce from 4800 to 5300 is wave one followed by a higher low forming at 4980 (wave 2)
• trading above 5250 indicates that a third wave rally towards 5500 is underway (i.e. where wave 3 approximates wave 1)

View is contingent on the XJO holding above 5000 and breaking above 5225 within the next 2-5 days

Bearish Triangle (chart 2)

• the move lower from 5700 to 4800 is the third wave within a decline from 6000
• the last 20 days trading has formed a 4th wave (triangle pattern) where a break below 5000 improves the odds for a 5th wave move to 4800 and potentially 4600
• the 4800 target is the previous low at 4800. The 4600 is the height of triangle subtracted from the break point around 5025
• given the move to 4600-4800 would be a 5th wave the implication is for a strong bounce from those levels to 5250

View contingent on the XJO remaining below 5325 and dropping below 5000 within the next 2-5 days.
 

 

Another trading idea from

Fifth Wave | fwtc.com.au                                               

FW generates over 150 Trading Alerts on the ASX100 each year. We are a subscription service specialising in short term technical strategies based on 27 years experience.

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