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Welcome all Safety in the Market traders to this month’s dedicated newsletter. The last couple of weeks have been highlighted by a dramatic sell-off and then return to strength through the recent bounce in prices. The big question is, has the long awaited ‘bear market rally’ begun?
During the global stock melt down, Australian financial stocks held their own better than most. That being said, they were still the victim of the global financial stock onslaught. Despite the continuing ban on financial stock short selling, recent weeks have seen Aussie financials cop a hammering which is ironic to say the least. Imagine the carnage should short selling have not been banned!
A stalwart of the Australian financial stocks and a long time member of the ASX20 is AMP. Since the end of February, AMP has seen prices fall from $4.98 (26 February) to $3.52 (10 March). That’s a fall of around 30%. That kind of fall over 9 trading days, at the end of a massive overall sell-off, definitely puts this stock into ‘oversold’ territory.
The elements of what an advanced Gann trader comes to know as a ‘Classic Gann Set-Up’ are Time, Price, Position, Pattern and Volatility. When it comes to volatility, what we are basically looking for is overbought into a top and oversold into a low. Volume also plays a big part of this final component of a classic Gann set-up as it proves volatility or greater intensity in the fight between the bulls and the bears.
Chart 1 (below) is the up to date market action on the daily bar chart for AMP highlighting the 10 March 2009 low of $3.52.
Chart 1 – AMP Daily Bar Chart – Island Reversal Supported by Volume
click chart to enlarge
While the volume on 10 March was nothing completely out of the ordinary (still higher than the 200 day average), the volume of the first up day (11 March) was a stellar day and something to stand out and pay attention too. Then when the market gapped up again on 13 March with above average volume again, we had ourselves a 5-day Island Reversal.
I’m on record in the Platinum Newsletters espousing a low of significance by (or near) the end of the 1st quarter 2009 for the ASX200 and it looks like it may have come sooner rather than later. Time is yet to prove this rally as sustained. However any support by volume starts to strengthen ones conviction.
At the time of writing AMP is yet to confirm a first higher swing bottom on a 1, 2 or 3 day swing chart and represents a perfect time for Advanced Safety in the Market Traders to start to consider the entry signals given under the rules of ‘Type 2’ trades for a trend reversal. We are well overdue for a ‘bear market rally’ in this market and many stocks along with the SPI200 are showing signs that it will be any time soon, if not having begun already. Where to from here is a topic for future editions, but let’s trust that the next few months will see brighter days for stock prices and some of the gloom to begin to lift, at least temporarily.
Until next time...
Noel Campbell
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