Will the Dominoes
Continue To Fall?
by Regina
Meani
The knock-on effect of
the European crisis was only too evident last week in the US and
Australian Markets. The accompanying charts highlight the
severity of the decline for the European PIGS from 2000 and from
the onset of the financial crisis from 2007. The question is
will we continue to be buffeted from overseas and will our own
domestic turmoil contribute even more?
While there are some
positive aspects appearing on the individual charts for the
Europeans, it is still obvious that Greece remains the most
threatened.
As we track the US path
we find that the Dow is close to testing key support and that the
Australian market is still riding within its long-term upward
trend.
New York Dow Jones 12369
points
A 20th Century
Fit
It has been my long held
view that the New York market is performing within a similar style
phase to that it experienced between 1964 and 1982. Moving
sideways for eighteen years the market then took off and rose for
eighteen years before halting in 1999 and entering a similar
sideways phase. As the phase has progressed the low point
achieved in 2009 equated to the 1974 low with the market rises in
May last year and again on 1 May this year (to 13338), bearing
marked resemblances to the upward pushes in 1976 and in 1981.
In 1976 the index reached within 3.8% of its peak within the
pattern but in May 2011 the market was nearly 9.5% short of the
pattern peak. More recently with the rise to 13338 the index came
within 6.6% of its peak. Comparable momentum between the late
1970s and early 1980s tends to suggest that there is limited
pattern leeway on the upside for the New York market, with the
13700-800 equating to the 70s and 80s, and indicates that there
will not be a significantly new high or low in the US as we advance
into the later stages of 2012.
Coming in for a closer
look we find that on the weekly chart there have been strong
similarities both in movement and momentum to 2009-2010 when the
index pushed higher along a restrictive line which finally rebuffed
the advance sending the market into pullback and decline. The
recent rebuff that the US experienced on May Day is almost parallel
to the volatility and downturn felt in the early part of 2010.
Keeping this in mind, it suggests that the Dow will seek key
support in the 11500-12000 area.
Post Script: The horn
formation which developed between February and May on the daily
chart for the Dow Jones is remarkably similar to what I remember as
having tipped the 1987 crash, food for
thought!!
Australian All
Ordinaries Index 4099 points
A 2007
Hangover
As with the New York
market my view for the Australian market is largely unchanged and I
have copied the following from a report I wrote in December
2011:
The long-term upward
path for the Australian market is strongly underpinned and my view
remains that it will continue unthreatened into 2012 and beyond.
Having said that, there is a caveat that some unrealised
downward targets within that trend may need to come into play.
The long-term chart highlights the similarities between the
1968-9 peak and that experienced in 2007, but the recent phase has
experienced higher volatility and the recent low at 2009 bears a
stronger resemblance to the 1971 dip which leaves some uncertainty
as to whether the index needs to connect with the longer term trend
as it did with the low in 1974 and would indicate a risk towards
the 3500-3700 region before the upward path can be fully
regained.
In December I concluded
that: The wider phase parameters lie between 4000 and
4550 with internal trigger points at 4080 and 4250 then higher at
4425 with the index needing to push past 4750 to break the 2007
downward trend. As we move towards 2012 it is not impossible
for the market to test its upper barriers but its vulnerability
remains high and is threatened by the 2007
overhang.
The past two weeks have
seen the Australian market fall heavily recoiling from the barrier
zone located around 4500 inline with the above parameters.
What we need to gauge is
the strength of approaching support around 4000 and whether the
index needs to reconnect with its long-term trend in the 3500-3700
range.
Going forward, the
magnitude of the two-week sell-off and the close proximity of
significant support indicate the likelihood for a bounce and rally
with its first step higher on a move back above 4120 to 4150
followed by resistance aligned between 4250 and 4350. Then
the old parameters come into play with the 2007 downtrend now
running through at about 4600.
As there is not yet
enough evidence to indicate that a rally in the short-term could
prove to support a stronger recovery, I retain the more cautious
stance that the market is still threatened by the 2007 overhang,
but that the long-term path can still be maintained and perhaps the
next little while will provide some selective buying opportunities
for the game at heart.
Disclaimer
Regina Meani is an
authorised representative of BBY Ltd which has an Australian
Financial Services Licence issued by the Australian Securities and
Investment Commission (License number
238095)
The information
presented is general and not prepared for your specific investment
objectives, financial situation or needs. Individuals should
therefore discuss, with their financial planner or advisor, the
merits of each recommendation for their own specific circumstances.
Not all investments will be appropriate for all subscribers. Past
performance is no guarantee of future performance. There is a risk
of loss in trading and investing as well as potential for
profit.
Every effort has been
made to ensure the reliability of the views and recommendations
expressed.
