XJO
I had initially suspected a major peak was in place back in April 2013, with a potentially completed pattern it looked like that forecast was starting to work, but nothing tends to be that simple these days, the decline from the 2013 peak started to look very corrective, so I had to abandon the call for a peak and look for alternatives ideas that would suggest a move higher, even if a marginal new high.
I won't bore readers with the details of what has happened over the past year; suffice to say I think the market is now starting to clear up. If you look at the price action over the past 12 months you can clearly see it's chopped higher, whilst the US markets went on a tear higher the same can't be said for the Australian markets.
I suspect the market is involved in an ending diagonal, technicians sometimes refer to this as a bearish wedge, although it still needs a bit more work, but if I am correct we could be setting up for a rather larger decline lower. I would like to see a bit more downside for wave 4 of the wedge idea, to around 5350, then setup for a final move higher in wave 5, that would setup a nice selling opportunity.
Long term targets reside near 3000.
XFJ
Australian traders should be fully aware that the XJO is heavily dependent on the banks and financial stocks, the sector has a weighting over 50% of the XJO, so it plays a huge part. If my memory serves me correctly there are 5 or 6 banking stocks in the top 10 weighted stocks in the XJO, so it would be wise to look at the financial sector and see it provides us with any clues.
This sector suggests a possible ending diagonal; currently I think it's in wave [iv], so ideally a bit more downside then rally for wave [v]. That should align nicely with the same idea on the XJO.
XSO
I am always dubious about a market when I see areas of the market not following the main market, whilst those divergences can stay around for a while; the health of the market is always under threat.
If we look at the XJO VS XSO we can see the small ordinaries have not followed the main market higher, that in my opinion is a warning for traders, so we can conclude its really the financial stocks via XFJ that is dragging the XJO higher, once/if the XFJ is complete the XJO will follow.
I caution the bulls that still have a lot invested in stocks, if I am correct and the markets are setting up for a major secondary peak, it could be a peak that will not be seen be seen for years to come.
Until next time,
Have a profitable week ahead.
Disclosure: The author is short via SPI futures
