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The political and financial landscape is a quagmire if you believe what you read in the newspapers. I can't recall a time when we've had markets heading higher amid such negative press. The markets factor forward-thinking into prices and have a habit of making pessimistic journalists look silly. If this holds true for 2012 then maybe there are better times ahead for global economies.
There is also a very real risk both technically and fundamentally that markets need some sort of correction to spur them on to higher prices. The U.S. equity markets like the Dow Jones and S&P 500 are hitting fresh highs and potentially giving us some double top patterns. The big mover index in the U.S. has been the technology sector NASDAQ, with stocks like AAPL performing well.
The NASDAQ has broken a key level at half its all-time high. In the Number One Trading Plan we learn to look at the Highs resistance cards as a way to measure the position of the market. Chart 1 shows the NQ-SPOTV and its position relative to the 2000 tech-wreck high, closing above the 50% level of 2,441.
Chart 1- Nq-Spotv
click chart to enlarge
The test for markets now lies in whether investors are chasing risk as opposed to safety. We may see bond and term deposit money move into the equity markets and force them higher.
Turning to local markets, let’s take a look at a technical chart for Rio Tinto that we have been studying in the Ultimate Gann Coaching program. Rio, like many stocks, trades on more than one exchange so it does need some extra analysis compared to a single exchange stock, such as Telstra.
Rio has experienced a strong run from the lows in December, 2011 and Chart 2 indicates the value of time analysis in the market as the lows occurred on 20 December, which is a Gann seasonal time. It ran to fresh highs of approximately $72 and then pulled back from 6 February, 2012 - a classic case of markets running from one seasonal time to another.
Chart 2 – Daily Bar Chart RIO
click chart to enlarge
I am watching this closely as there has been an overbalance of time on this market with a run of four days down in a row for the first time. There are also some strong Time by Degrees setups to be found by running back to previous turns.
Adding some price-based analysis such as highs, lows and ranges resistance cards indicates a pullback for Rio could be on the cards, which makes sense - if RIO is to push up to higher prices it may need some level of pullback to refuel. I like this market and think it could provide some long and short opportunities in the coming quarter.
Good Trading
Aaron Lynch
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