Technicals | Dec 02 2014
By Michael Gable
In our comments last week we expected that any bounce in our market will encounter renewed selling and our market would dip into the 5200’s. The speed of the decline in the last two days was greater than anticipated of course, so while our downside targets have been reached and our short positions on the market are being unwound, we have had to go back to the drawing board and figure out where our market will head to from here.
We have put in some further commentary in this week’s report on what the chart is telling us about the market. The rapid decline in the price of oil has added an element of short term fear to our market but we have to remember that softer energy prices will benefit developed economies. An OECD study suggests that a US$20 drop in the price of crude oil translates to a 0.4% increase in GDP over 2 years for member countries. Energy accounts for about 10% of consumer spending in Europe and 20% in the US. So, while governments may see a hit to their budget in the short term (oil and gas accounts for 50% of Russia’s budget by the way), longer term, the effects will be positive.
ASX200 (XJO)
Our previous level of 5400 became resistance last week. From the peak near 5550, if the market pulls back in three waves (a counter trend move), then we should see it find support close to 5150. This also happens to be around the uptrend line that is created by connecting the lows from August last year. If that level fails, then the next level of support is closer to 5050. This is derived by interpreting price action this year as a “rising wedge” which is indicated by the dotted lines. When a rising wedge is broken, the market will eventually find the base of that wedge.
Also, if we assume that the market completes a larger 3-wave pullback that commenced from the September high, then it also takes us down to about 5050. So, for the next few weeks we are expecting limited weakness to either one of those levels before the market resumes the uptrend.
In the meantime, the overall market is likely to remain soft for a few weeks, even though most of the damage has now been done, in our opinion. We therefore imagine that some opportunities will be uncovered before the end of the year.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Michael Gable is managing Director of Fairmont Equities (www.fairmontequities.com)
Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.
Michael is RG146 Accredited and holds the following formal qualifications:
• Bachelor of Engineering, Hons. (University of Sydney)
• Bachelor of Commerce (University of Sydney)
• Diploma of Mortgage Lending (Finsia)
• Diploma of Financial Services [Financial Planning] (Finsia)
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2
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Disclaimer
Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
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