Head and Shoulders continues to form
The XJO continues to form the head and shoulders pattern I’ve been looking for, the market is being fashionable by both putting on an 80’s inspired broad shoulder pad and keeping everyone waiting. While economics conditions continue to improve the Australian market remains ahead of itself. The question we need to consider is what will the economy look like in nine months or more.
Looking ahead I feel like the first little pig with a house built of straw. The big bad double dip recession will come along and blow our house down. The quantity surveyors were all fired before the foundations were poured and the architects wanted something built quickly which looked fantastic and cost be damned. Just as we move in and get comfortable with earnings improving year on year our house is likley to come down around us.
We don’t have to breakdown from here. My working thesis is that no-one wants a pre-Christmas collapse. Even the bears have given hope. While the market likes to disappoint the many, this cyclical bull hasn’t pulled in enough money yet. So any validation of the head and shoulders is likely to be short lived prior to the market pulling to new highs before a sell-off sometime in 2010. Now let me stress I just made that thesis up! Next step is to look at some history to see what it tells us is most likely.
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“TRADING momentum in Australian companies has softened significantly in the past two months, meaning the nine-month rally may be ending.
Less momentum in the S&P/ASX 200 Index indicates less demand for the stocks that make up the index, according to Robert Brain, a private trader, consultant and secretary of the Melbourne chapter of the Australian Technical Analysts Association.
”Even though the index might be moving higher or moving in a sideways pattern, the falling momentum indicates that the market in general is getting weaker – we call this bearish momentum divergence,” he told BusinessDay.”
http://www.theage.com.au/business/market-heading-for-fall-analyst-says-20091130-k1bk.html
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