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2013 has brought increases in the stock indices in most major economies, fresh highs in some and the potential for more to come, if the right conditions are met. The SPI 200 is now trading comfortably above 5000 points, a key psychological and technical level.
Chart 1 shows the 50% level of the GFC range and the previous double tops at that level in April, 2010 and April, 2011.
Chart 1 - Weekly Bar Chart SPI 200
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It could be argued that a second section is underway, with the current leg commencing on 16 November, 2012 (an exact 20-year cycle after the 1992 low). Chart 2 measures the milestones of the first range compared to the second. It suggests we have expansion at 125% of the first range. We are also seeing these ranges enter territory that presents higher risk for long entries, as we are closer to a top than a bottom.
Chart 2 – Weekly Bar Chart SPI 200
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This is where the trusty old swing chart can add perspective about the trend and also momentum in the trend. To see big picture ranges of the swing chart, we can use weekly and monthly charts and compare their averages.
Chart 3 displays the weekly swing chart. Without a higher swing bottom, the trend is uncertain. The current upswing of 797 points is more than 300% greater than the average of the previous 20 swings, which was 279 points. While this suggests that we are in the ‘winter’ of this swing, it doesn’t mean it has to decline.
Chart 3 – Weekly Swing Chart SPI 200
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Chart 4 displays the monthly swing range. In this perspective we are closer to the average monthly swing - the average of the previous 20 swings was 749 and the current range is 797. This chart suggests that the monthly trend is up.
Chart 4 – Monthly Swing Chart SPI200
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Traders should have systems that trigger trades based on tried and tested methods. This could mean that you will enter long positions, even in the current situation. Any perceived extra risk can be managed by reducing position sizes to counter the possibility of bumping into the end of the move.
March looms as an interesting time to watch for confirmation of future direction. Combine that with a focus on swing chart direction and ranges and you could end up on the right side of the market.
Good Trading
Aaron Lynch |