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Dizzy Heights.
The markets march on as they climb to record highs for 2009. This sort of run is enough to nearly wash away the memories of 2008 but rest assured as markets move higher we are getting closer to the point where a breather is in order.
Trading the swing charts has been the most profitable method in recent times and looking at the bigger picture with price forecasting tools have ensured a better confirmation for trades has been on offer. It’s important to understand that if you have just started trading it’s not always as strong as the current moves so don’t expect this to be the “norm” in your trading career. Earlier this year I looked at the sectors in the economy and discussed how the recoveries from March 2009 were driven by the resource and mining sectors where the banks and finance arena had been a sideways performer. This has changed dramatically in the last month as the XBF (banks and finance sector) has been much of the provider to the overall rise in the ASX 200.
In Chart 1 we can see the XBF. In chart 1 we can see the run in July and August has been very impressive with the 2 clear sections running out in the short term.
Chart 1 – Daily Bar Chart XBF
click chart to enlarge
In chart 2 we can see this sector has recovered to the 37.5% milestone of the record highs and 2009 lows. This recovery has buoyed the investor in the market but has yet to really dent the losses many suffered in 2008. There are some signs that the market can and will likely push higher, but if may need a pullback to fuel the market move to higher prices. So the question will be to where and when? I have included the retracement percentages of the all time high and we can see that the market climbed above 25% heading towards 37.5% with the potential to hit the 50%.
The 25% level may represent a good area to watch for support in the case of a pullback and the 50% level a potential target for the recovery to find some upside resistance. Gann always remarked how important the 50% point is and to me this price point in all markets will be a very important level to watch for the remainder of the year.
Chart 2 – Weekly Bar Chart XBF
click chart to enlarge
If we continue to see a strong run higher the logical thought will be a sharper pullback would be in order. To that end keeps your focus on the markets watching for subtle signs of a continuation to this trend or for signs of slowing.
Good Trading
Aaron Lynch
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