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Another financial year draws to a close.
As we close on the end to the current financial year many are asking are the recent sell offs in the equity markets the sign of more to come. It has to be said since the early May we have travelled predominately sideways and this last climb to yearly highs has been very weak with volumes and average ranges shrinking. The fundamental news in the market has also been negative against a rising prices, this combined with the need for many stocks to go into capital raising by issuing more shares may have finally weighed the market enough for it to take a break.
The commodities market has been a great performer in 2009 to date with oil, gold, and many of the agricultural products performing strongly. Now is an excellent time to decide what to do if the markets fall and what are your fall back positions for shares you may own for the long term. We could take a look at the SPI and BHP as two examples of how to set up some targets for managing the position.
In chart 1 we can see the SPI200 has paused at 50% of the first range out, this does not mean it has to keep falling it’s just a case of the a logical place for resistance. The important thing to watch is the retracement percentages if the market continues to fall. The 25% and 50% levels of the retracement see 3840 and 3598 as being areas to watch for support if this market can climb to the 100% level of 4401.
Chart 1 – SPI 200 Daily Bar Chart
click chart to enlarge
The same techniques can be used to setup a stock like BHP. In Chart 2 we can see the current top sits at the 62.5 % of the range, which also very close to 61.8% of the Fibonacci sequence. The BHP price action has climbed just over the 75% level of the first range out and since fallen under.
Chart 2 – BHP Daily Bar Chart
click chart to enlarge
The other pattern that stands out to me currently is the island reversal pattern that was confirmed on the 17th June. Until the island reversal gap can be closed on the upside there will be some challenges ahead for the BHP price action.
Chart 3 – BHP Daily Bar Chart
click chart to enlarge
Setting up a first range out tool and a simple retracement tool is quick and easy to set up on any stocks you may have in your portfolio or trading. These simple techniques allow us to formulate a plan of attack to ensure we can take action if the market continues to fall or climb.
Good Trading
Aaron Lynch
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