XAO Short Term Update

The XAO appears to be ready to head lower, but first I'd like to see the index quickly break 4075 on the downside (the start of the c wave in the small wave 2 correction) before correcting briefly and then continuing aggressively lower.

RBA Forced to chase 90 day rate - downwards

The RBA cut the Cash Rate Target to 3.5% today after a 0.5% cut last month - chasing the 90 day rate downwards. The RBA should have passed on a full 0.5% cut, however, after the 0.5% cut last month they would be feeling some political pressure to avoid such a move.

If the 90 day rate remains unchanged or falls before the next RBA meeting, expect another 0.25% cut - historically the RBA keeps the cash rate lagging the 90 bill rate by about 0.15% on average - evidence the RBA are simply following market rates and not setting them.

Medium Term Gold Update

Some recent action in the Gold price could be a strong indicator that the long awaited wave 'iv' circle has completed. Supporting this is a positively divergent MACD indicator indicating the wave 'iv' circle triangle may be complete.

This chart updates this post from 2011....

XAO Short Term Update

The 4000 level is almost upon the All Ordinaries and the possibility of a bounce is increasing with a divergent MACD and strong support levels at 4000 and 3940.

Both these target levels represent Fibonacci ratios of wave 'iii' circle as described below in the chart. MACD divergence is covered in more detail in this post and it is usually a very good indicator for determining the endpoint of wave 3's.

There is a possibility that wave 'v' circle down is complete and would mean wave '1' down is complete.

 

XAO Long Term Update - May 2012

This post is an update to the long term chart here and updates the current view (no change to the wave count). What's different is the ending of the wave 'B' circle - ending a triangle. Some suggested downside targets are included based on Fibonacci relationships of wave (1) down of wave 'C' circle and updated downside targets based on Fibonacci relationships of wave 'A' circle.

A downside target of 2350 is an interesting target area as it represents several relationships: 61.8% of wave 'A' circle and a relationship of wave (1) down: using wave (1) = wave (5) and wave (3) is 161% of (1) will give an approximate target of 2350.

The extreme downside targets are also valid since they correspond to previous wave 4's of different degrees:

• 1500 for the 1987 wave 4, and
• 300 for the 1975 wave 4 of one larger degree

The 900 target area represents wave 'C' circle = wave 'A' circle and would be another target of high interest.

Think any of these target areas are unrealistic? Just take a look at the MSM financial assertions and the postings from numerous people in the 'know' on the internet as wave 'A' circle started to unfold back in 2007 - hardly anyone believed the XAO could more than halve in value in under 2 years. Are we on the precipice of a new bull market to regain all those losses or is there more uncertainty than ever before?

Short Term Update - Start of a new trend

The substantial sideways move on the XAO looks to be complete. The rapid declines have taken out the 2nd flat that starts at the end of the 'X' wave – a good indicator the wave (2) correction is complete and  change in trend and wave count has occurred.

The MACD price oscillator has been divergent for many months indicating weakening momentum which combined with wave structures advancing slowly upwards in waves of 3's is a bearish indicator.

For the decline, the orange lines represent a declining channel that appears to still have room to fall to deliver a 5 wave decline. If the index continues to fall with a divergent MACD, then expect a bounce soon probably at around 4000. This level also represents 38.2% of wave 3 in the decline (not labelled). Right now, the index looks to be consolidating as a triangle

It should also be noted that the first A-B-C flat isn't strictly correct since wave 'C' doesn't clearly show 5 waves up. This was discussed some time ago but we had to go with what we saw until the wave counts proved there was something wrong (such as a small 5th wave failure within the B wave). Apart from this anomaly, both flats retrace at least 61.8% and are a 3-3-5 structure with a triangle for the X wave.

XAO Short term update

The long drawn out stucture on the XAO does not appear to be a double 3 correction from what has transpired, however the recent declines may provide some further clarity on the short term wave count. It's possible that a double flat correction may have ended and the declines (in a 5 waves) may be a significant indicator.

The next week or 2 should provide clarity...if major near term support regions are broken then a significant leg down may b underway.

RBA to lower rates

The RBA will need to lower rates when they next meet now that the 90 day bill rate has fallen below the cash rate target. The 90 day rate is 4.08% versus the cash rate target of 4.25% and a 0.25% reduction is now justified.

XAO Short Term Update

The wave count has been updated slightly to take into consideration an 'anomaly' - well, I did say triangles have a habit for tricking. It appears a triangle has unfolded as a wave within the larger triangle itself - thus delaying the commencement of  wave 'd' down. Time wise, wave 'c' can be a long wave within triangles.

Also, RBA Interest rates are on this week - cash rate target is currently at 4.25% and 90 day bill rate has come down to 4.3% (4.45% at start of March). I doubt the RBA will lower rates this month (but there's a slight possibility) since the cash rate target is still under the 90 day bill rate - not by much though. The average gap is 0.15%.

XAO Brief Update

The end of the ever unfolding triangle is close to the upper limits in terms of price and in order to support the short term count, the requirements call for:

• a decline from the current levels,
• cannot break above 4400

XAO Short Term Update

The sideways correction on the XAO still has some more 'sideways' to go. The last XAO post indicated a possible move down to the 4200 levels (maybe lower to 4150) to complete wave 'd', this appears to be occurring as anticipated, once complete, a push up to complete wave 'e' is needed. This next set of moves should complete one of the largest Double Three Combination corrections seen on the XAO.

The Australian Job market appears to be catching up to the bearish social mood with several major brands announcing job cuts this week. I don't believe the cuts are significant at the moment as I'm expecting a much larger round of cuts if the market falls as anticipated. Major job cuts tend to occur near the market bottom when conditions are the worst.

As for the chart below, the index needs to keep within the approximate boundaries for the time being so waves 'd' and 'e' can complete. A premature push out of the triangle with momentum could be an indication that the short term count is not accurate - or as triangles love to do, create uncertainty.

Interest Rates - RBA asleep at the wheel?

The RBA must have struggled to put verbiage together this week in order to make their very important interest rate decision. Regurgitating views we already know: the usual waffle on Europe we've seen for months now in all the financial media; Food Prices are unwinding (Thanks to Coles supermarket - lucky they slapped together a discount advertising campaign otherwise the RBA minutes would be a sentence shorter), unemployment has risen; etc etc.

Is anyone awake at the RBA and looked out the window? The verbiage is wonderful, but a cursory glance at the 90 day bill rate shows that is has changed very little over the last few months. The 90 day rate is at 4.39% v's the RBA Cash rate target of  4.25%. The RBA "cash rate target" lag of the 90 day bill rate is on average 0.15%, and guess what - the RBA lag is 0.14% as of Thursday, almost bang on average.

Next month I'll get out of bed a little earlier and put up the updated charts of the 90 day v's the RBA cash rate target - and make a way out guess on what the decision will be.

XAO Brief Update

With a small break above the recent high today, indicates that a different wave pattern may be unfolding for the short term count. This Double three combination correction is still in play and a primary count, but this leg up may be wave 'c' of the triangle.

The rationale behind this is that the structure that commenced on the 25th Nov 2011 (end of wave 'b' in the previous chart) to now - is a flat and considered wave 'c'. The last leg up is in 5 waves, leading to a 3-3-5 structure ending at around 4400.

The short term view is for more sideways action on the XAO, heading down to 4200 to complete wave 'd'.

XAO Short Term update

The XAO should have completed the Double Three Correction. Downside should now follow...