A Technical Analysis of the Australia Stock Market

By: Robert McHugh | Fri, Dec 29, 2006
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The Australia SPASX 200 rose 9.40 points or 0.17 percent to 5,669.90 Friday, December 29th, 2006, with volume at 53 percent of its 10 day average. Upside volume led at only 48 percent, with advancing issues leading at 47 percent, and upside points at 62 percent. Demand Power fell 3 points to 403, while Supply Pressure fell 3 points to 376, telling us there was little conviction about the trend, and little interest in taking a position.

Our key trend-finder indicators remained on a "buy" signal Friday. The Purchasing Power Indicator rose a point to 104.83, a new rally high, remaining on its "buy" signal from November 22nd, needing to drop under 98.83 for a new "sell." The 30 day Stochastic Fast came in at 76.00, above the Slow at 71.72, remaining on its "buy" from November 30th. The 10 day average Advance/Decline Line Indicator remained on its "buy" signal from December 12th, at positive +28.2. Our key trend-finder indicators are designed to find trends of at least 2 percent. So far, prices have moved higher by 3.7 percent to 4.4 percent after our indicators generated recent "buy" signals.

Australia SP ASX 200
Date Closing Price
SP ASX 200
Power Indicator
Dec 21 5,583.50 Down 4 to 407 Up 7 to 390 Down 2 to 102
Dec 22 5,603.70 Up 2 to 409 Down 2 to 388 Up 1 to 103
Dec 27 5,643.20 Down 1 to 408 Down 6 to 382 Up 1 to 104
Dec 28 5,660.50 Down 2 to 406 Down 3 to 379 Flat 0 at 104
Dec 29 5,669.90 Down 3 to 403 Down 3 to 376 Up 1 to 105
Summary of McHugh’s Proprietary SP ASX 200 Buy/Sell Signals
  Index Term Signal Date Last Given Fullest Extent of
Index Move Since Signal
Power Indicator
SP ASX 200 Short Buy November 22, 2006 Rose 238.70 Points (4.4%)
30 Day Stochastic SP ASX 200 Short Buy November 30, 2006 Rose 202.30 Points (3.7%)
10 Day Average Short-term Advance/Decline Crossover Signals
Index Dec 29th
A/D Indicator
Signal Date of Signal Fullest Extent of
Index Move Since Signal
SP ASX 200 + 28.2 Buy December 12th, 2006 Rose 210.80 Points (3.8%)

The 10 day average Advance/Decline Line Indicator has been in a declining trend since October, and has been diverging bearishly with prices. We should see a bit more rally, then a multiweek decline in early 2007. We believe this because of the emergence of an Ascending Bullish Triangle -- which is now complete. Triangles are usually wave fours, so this clears things up. The triangle is Minor degree wave 4, a corrective sideways pattern, which has predictably led to one more push north, wave 5 up. We can estimate a minimum upside target for 5 by adding the widest portion of the wave 4 triangle to the breakout point. This targets 5,700. Once wave 5 up completes, we should see a return of the Bear market.

The bottom chart on page 3 shows the SPASX200 rose past its May 10th, 2006 5,406.70 top, hitting 5,409.90 on October 30th, confirming we were in a Symmetrical Triangle for Intermediate wave 4. Prices currently reside inside the rising Intermediate degree wave 5, which should finish the Primary, Cycle, and Supercycle wave five tops.

Upside momentum is waning, so we may fall short of 6,000. Wave 5 must be smaller than wave 3 to comply with Elliott’s rules, where wave 3 cannot be the smallest wave inside an impulse wave, since wave 1 extended, so 6,000 would be a lid. Wave 5 could stop far short of 6,000 if it wants to. We will rely upon our key trend-finder indicators to know when the downside trend begins. Should the Purchasing Power Indicator, 30 Day Stochastic, and 10 day average Advance/Decline Line indicators all generate a "sell," it would likely mean wave 5 has topped. The Weekly MACD is diverging Bearishly with prices, warning a meaningful decline is over the horizon.

Bottom Line: The Intermediate wave 5 rally completed its wave 4 Ascending Bullish Triangle. Wave 5 up is now underway to a major top.

Conservative Balanced Portfolio Transactions Friday, December 29th, 2006

* For our Market Timing segment of our conservative portfolio, we purchased 100 shares of EWA, an ETF for the Australia SPASX200, at $24.36 per share ($ 2,436.00 investment), and also purchased 50 shares of DIA at $123.86 per share ($ 6,193.00 investment), and also thirdly, purchased 100 shares of QQQQ at $44.45 per share ($4,445.00 investment) on December 14th, 2006.

* We also purchased for our Speculative segment (the details are highlighted in the Traders Corner section of our website) 20 contracts of DIA Call Options (controls 2,000 shares), at a strike price of $127, expiring on February 16th, 2007, at a cost of $1.00 per share, for an investment of $2,000.00, on December 14th, 2006. Symbol is DAWBW.

We posted an updated Balances/Market Value Portfolio as of November 30th, 2006, available in the Guest Articles section.

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An Exchange Traded Fund for Australia is symbol EWA

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Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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