The S&P/ASX 200 is Australia’s premier share market index. It’s widely followed and represents Australia’s top 200 stocks by market capitalisation.
Since the index bottomed after the financial meltdown of 2008/09, it’s now up a staggering 73%. This is nothing compared to the US S&P 500 — the most followed index in the world — which is up over 188% since its bear market low in March 2009.
You may think, surely the market can’t go up forever. Let’s face it: a lot of mainstream commentators and analysts have been calling for an end to this bull market for some time.
This begs the question, where is the market going next?
On this I’m with Kris Sayce. The Australian stock market is extremely bullish technically at the moment.
Free Reports:
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Let me show you what I mean. The chart below tracks the S&P/ASX 200; each bar represents one week:
The chart above shows that the market is going through a staged rally, shown by the black line. This is a technically bullish pattern for the ASX 200.
I’ll explain this further.
There have been three share market rallies over the past 18 months. The first rally, between November 2012 and March 2013, re-rated the market from 4,400 points to 5,146 points.
This was an exceptionally strong rally for a major index, returning 17% in less than four months. Before the rally, the market was very cheap on a price to earnings valuations multiple. In this case, the rally took share valuations back to a historically normal level.
Considering the strength of this rally, the market became sceptical and sold off much of the gain. This defined the first significant resistance level of 5,146 points.
As a result of this sell off, the market defined a lower high during 2013. This is very bullish, and means that the selloff low point of roughly 4,600 points was above the November 2012 low of 4,400 points.
The market entered into the second stage of the rally as confidence came back around June 2013. The market rallied hard through the 5,146 resistance point, causing a triple high. This means that the market hit the 5,146 psychological resistance level three times.
A triple high is technically bullish.
After the triple high, more money poured into the stock market, causing a second significant resistance level of 5,351 points.
Since this time, the market has gone up with no real momentum.
This is great, but what does this all mean?
It means that the stock market hasn’t gone up in a straight line. The bull market rally has been slow, methodical and enduring. There is no ‘euphoria’ in the stock market like you typically see during the last phase of a bull market.
Now we are at another significant resistance level of around 5,514 points. I show this with the light blue line.
If the market can break through this psychological point, it’s likely to go higher.
Saying this, the market could see a short term 10% correction. I wouldn’t be surprised to see a mini-correction before the next stage of the bull market begins.
So, is Kris on track with his ASX 7,000 call for next year?
My analysis suggests that he is.
Jason Stevenson+
Resources Analyst, Money Morning
From the Port Phillip Publishing Library
Special Report: The ‘new steel’ that could revolutionise the auto industry, and how you can profit
