Wednesday, June 11, 2008

Australian Stock Market Update

The chart shows progress so far since all time highs in the Australian stock market at the end of October. A suggested Elliott Wave count consisting of a triple zig-zag W-X-Y-X-Z is shown. In US markets I believe the top was in July. The move out of the August low in Australia has five waves though and plausible counts from the 2003 low place it as the top of the market. Of course, other counts from the high to the March low are possible, but I think this is the most plausible. All E-Wave analysis can tell us, is that the decline, could be complete. The correction might simply be the first wave of a much larger correction if the more bearish scenarios play out. I've also sketched a five wave rise from the March low to the May high. Wave 4, in this sequence doesn't look much like a correction, but this count again is the most plausible. The move down from the May high also looks "impulsive". We've now hit the lower Bollinger Band (34 day moving average minus 2 standard deviations, which is a natural point to attempt a bounce, especially when the moving average is not declining. At the January and March lows the BB didn't arrest the decline immediately, as you can see the moving average and bands were declining steeply. So I expect a bounce of some duration here, and the model is forecasting a rise too in coming days. We are also just above the August low.

This point in the market does seem similar to the January Societé General and March Bear Stearns lows. This is the Lehman low, where Lehman did not blow up but was rescued with a private capital injection. I've also marked a possible inverted head and shoulders bottom. We need to rise above the 6000 level and break through the blue resistance line before this comes into play. If it does, expect a move to the old highs as a minimum target. That's the bullish scenario. Any move down from here would be very bearish. I'm betting on the bullish outcome.

Overnight, the US market seemed to stabilize, Japanese futures are up pre-open as I write. Let's see what happens.

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