Tuesday, October 26, 2010

Wave 2 regains some momentum

In the last chart,  there was a real possibility that a top was at hand for wave '2', however, we have seen a new short term high on the index that invalidates the short term count.

What one hopes to see after the top is at hand is:  1) fives waves down, and 2) a break of the 'ii-iv' trend line in less time that wave 'v' took to form. It appeared a very small five wave decline had commenced at the green dot in the chart below, but it failed to break the light green trend line (the previous 'ii-iv' line) quickly enough -  taking twice as long as wave 'v' before a break eventuated. This condition provides a warning that  wave 'iv' may not have completed.

With the long drawn out sideways action on the XAO, consistently moving in waves of 3, it is very likely that a larger triangle has been forming as shown below. It's unclear how much further wave 'v' has to go depending on how you count the internal subdivisions, but I suspect further upside is needed perhaps to the 76% retrace.

The new "ii-iv" trend line is now drawn - same rules apply.

Tuesday, October 12, 2010

Wave 2 update

A short update: It appears that wave '2' may have ended yesterday with the XAO failing to drive higher today. For confirmation, the index will need to drop thru the trend lines discussed in yesterdays post in sets of 5 waves down.

Monday, October 11, 2010

XAO topping

The All Ordinaries index appears to be in the final stages of the topping process. In the chart below two triangles at different degrees are evident and will complete wave (c) of '2'.

The index hit a key target today @ 4773 described in the last post and declined for the rest of the day, but I suspect there is still further upside to go as the decline does not appear to be a 5 wave move right now.

In support of the wave 2 topping, two triangles are evident on the short term count and indicate an upcoming trend change. The first triangle is an expanding triangle for wave 'iv' and the second is a smaller triangle wave '4' circle, both are indicating a upcoming change in trend of a higher degree. Thus, it is anticipated that wave '2' will come to an end in as little as a few trading days or into the early part of next week.

Breaks of the short term wave 2-4 circle trend line and the slightly longer term wave ii-iv trend line will be key indicators that will signal a potential major change in trend. 

Possible target area:
  • at 4816, wave '5' circle will be equal to wave '1' circle.

Wednesday, October 6, 2010

XAO - Wave 2 pushing higher

The previous count for wave '2' has been invalidated as the XAO hit a new high today and casts significant doubt over a double flat correction. An alternative count below shows wave '2' still unfolding but as a single flat correction.

One deciding factor is interpreting wave 'i' of (c) - it could be counted as 3 or 5 waves. Counted as 5, it provides the first leg of wave (c) up. The minor issue in this count is wave 'ii' and 'iv' of wave (c) overlap ever so slightly - sometimes due to opening and closing extremes on the all ordinaries index.

Some upside targets for wave (c):
  • At 4775 = 38.2% of wave i of (c) 
  • At 4874 = 61.8% of wave i of (c)
Wave (c) could possibly be complete as of today due to the new high, but a break below the wave ii and iv trend line (not shown) will need to occur before we can consider 5 waves up complete.

It's also interesting to note the RBA left interest rates on hold this month - politics at play for the new Government? Further upside on the 90 day rate will force the RBA to reconsider the cash rate target at the next monthly meeting.

Friday, October 1, 2010

Interest Rates - How the RBA doesn't influence the cash rates

It'll soon be that time again, and the usual hype around where interest rates are going will be in the MSM. For anyone who takes the time, they can download the Historic rate data from the RBA web site and determine for themselves where the RBA cash rate target is most likely heading. Have you ever wondered why the MSM don't publish comparison charts (like the one below) prior to the RBA interest rate decision? Simple: The media hype it up every month - hype and fear sells news, in addition nobody in the MSM wants to undermine the RBA.

The RBA insists that it influences the cash rate in the market, but I contend that it is the market that sets the interest rates and the RBA simply follows the trend (as best they can). Some folks even believe that the market "anticipates" the RBA rises in advance and hence that is why the target cash rate and 90 day bank bills are tied closely together. Gees, I'd like to know who these rate experts are and how they are almost 100% correct each and every time and what their predictions are for the next 12 months. Maybe they should swap jobs and predict stocks each day.

Seriously, a cursory look at the rate charts prior to a RBA rate "decision" will provide a good glimpse into what is the most likely outcome. As of the 29th Sept, the difference between the cash rate target and 90 Day bill rate is almost +0.5%. It's highly probable that the cash rate target will rise by 0.25% (unless politics gets in the way soon after the election). The average difference between these two rates over the long term is +0.1% and over the previous quarter is +0.3%. Since there is almost a 0.5% difference at the moment, then rationale suggests that a 0.25% rate increase is likely.

The daily chart below shows the RBA cash rate target lagging the 90 day bank bill rate.