Lets examine what the market is telling us by using the S&P ASX 200 Index ( XJO). This is the benchmark index which is followed by fund managers and institutions. (Note the All Ordinaries is a popular headline figure but it is the XJO that underpins professional assessment of the market)
What you can see is the 3500 level is the critical support level for the XJO and it has failed once. The next support level is near 2800. Traders are very cautious with false rallies, dead cat bounces and rebound failure.
We may see some consolidation between 2800 and 3500 and some rally and retreat behaviour. This is not a trend change. A fall below 3500 shows a market, and an economy, in serious trouble. Sharp rebounds are not trend changes. They are part of a volatility struggle that indicates indecision and confusion. This creates whipsaw trading conditions with many false rallies. Failure of support near 2800 tips the market towards depression targets.
Looking at the daily XJO chart you can see that the long term GMMA (the red Guppy Multiple Moving Average) does not show evidence of compression. This tells us that investors (red) are sellers – not buyers. This suggests there is still room for the market to fall further and test the long term support level seen on the weekly chart.
The first genuine support level is near 3500, but bear markets have a habit of testing the lower levels of trading bands. The lower level is near 2800. These provide the recession target levels. Treat the fake-out rallies on the daily chart as trading opportunities. In this environment it’s the monthly chart that is most useful for a strategic view of market developments.
The blue moving average lines are the traders prices and the red are those of the investors - Learn more about Guppy-Darvas
