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Taking a quick look at some of the equity markets, one could be excused for looking for a top at the moment. The Dow Jones has just reached double its 2009 lows and has inched past the double tops we’ve been watching for a few weeks now. The S&P 500 is also looking like a double top, having achieved 75% of its 2007 -2009 bear market range. If a top does form there could be potentially profitable shorting opportunities ahead. Chart 1: S&P 500 Futures Contract showing potential double tops
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In Australia the picture is a bit different. We haven’t seen anything like the share price recovery that the U.S. has enjoyed in relation to the 2007 highs and in recent times we have had a contracting market. When a wedge formation like this appears, the market has to eventually break out of it. So which way will it go when it does? Chart 2: Share Price Index Futures Contract with contracting market
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With the possibility of a correction on the US market, I am cautious about long opportunities at present but I cannot ignore what I am seeing on the Commonwealth Bank (ASX:CBA) at the moment. Chart 3 displays the very strong low in September last year and another in late November. Those who have been following my articles will know that I have been watching a date in February for another turn, which is looking like a third higher low. CBA went ex-dividend on 20th February (and not on the 14th as indicated in a previous article) and this is showing the potential to be a strong swing bottom at the time of writing. Chart 3: CBA showing higher lows
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There was an opportunity to take a long trade using the closer’s rule on 20 February but would you be prepared to be long at the moment? The first thing is look for price support under this level. I suggest you set up resistance cards on CBA, or if you already have these as saved charts in ProfitSource, take a look at the 2009 low, the 2011 range and the All Time Ranges card. These are all showing big picture support around this price.
On the smaller picture, if we treat the range from 25 November to 27 January as a small section, the low on 20 February retraced to 50% of that range, as shown in Chart 4. Chart 4: with 50% Retracement of Recent Range
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For the moment the February low appears to have some support and may well be the start of a third section up from the September low. I will be keeping a close eye on the U.S. and Australian equity markets over the coming days and into the March seasonal date. I will be keeping my stops close and ready to reverse if the move fails but unless that happens, this market is looking strong.
It’s the Journey
Lauren Jones
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