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Let’s look at where the Australian market is at the moment:
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This is a classic Elliott move. We have seen a strong move higher in the last two months. It could run higher but it is looking a little ‘toppy’ so let’s analyse further using basic indicators.
Firstly Bollinger Bands:
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You will note the market has hit the upper band a number of times. While this could continue for a while, we know that the likelihood of it doing so without returning to the lower band is not great.
And the Oscillator:
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We note a divergence, which is a negative indication. Again, while the market could still head higher and the oscillator ease further, it does indicate a market running out of upward pressure.
And now to On Balance Volume:
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The OBV and index are relative on the first chart. We can also see the raw volume on the second chart. OBV has kept pace with the move in the market but raw volume - while increasing in the last two weeks - has been on a downward slide over the last several months. Volume is about on a par with where it was this time last year.
Let’s finally look at the weekly Elliott:
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This suggests a much bigger pullback than the daily but maybe not until April to June.
In summary it does appear that the market could still have steam in it until a possible “Sell in May and go away” scenario, as they say in the northern hemisphere. But we have some time to prepare for this.
Maybe this is a market for some short-term trades but in my view we are too far up the risk curve for medium-term buying.
Enjoy the ride
Tom Scollon |