XAO Technical Analysis

[Trembling Hand]

Re: XAO Analysis

How are the new regulations squeezing the shorts?

Presumably the increase margin is a some kind of attempted to stop manipulation, as uniformed as that is. All that will eventually do is squeeze who ever is the weakest. And pull backs aside. I would bet the Longs have more fire power than the weak and wary shorts.

 

[Whiskers]

Re: XAO Analysis

I thought this little note on oil worthy of keeping in mind in the context of the Aus market.

I noticed this from EWI's latest newsletter. I don't have a paid subscription, because I already knew this. :

Maybe someone who has a subscription or a proficient EW'er could eloberate.

http://www.elliottwave.com/features/default.aspx?cat=gw

 

[wavepicker]

Re: XAO Analysis

On the 16th July I posted we had important turn dates coming up on both 24th July and 8-15th August.

https://www.aussiestockforums.com/forums/showpost.php?p=315090&postcount=3789

The 24th July turn date marked a high last night, and this IMO is setting up a very important low coming. Last nights turn was further quantified by the Cycle Bands as an important high and that markets neded to revert back to the nominal.

All eyes now on Aug 8th-15th, will this be a higher low or a lower low? Either way it will be a very important one IMO:

 

[Porper]

Re: XAO Analysis

On the 16th July I posted we had important turn dates coming up on both 24th July and 8-15th August.

https://www.aussiestockforums.com/forums/showpost.php?p=315090&postcount=3789

The 24th July turn date marked a high last night, and this IMO is setting up a very important low coming. Last nights turn was further quantified by the Cycle Bands as an important high and that markets neded to revert back to the nominal.

All eyes now on Aug 8th-15th, will this be a higher low or a lower low? Either way it will be a very important one IMO:

As Wavepicker has posted a chart with time analysis on, thought I would do the same.Then Trader Paul can do the same as he challenged E.Wavers on another thread.

My count is slightly different to most.(more an alternate count).Most have my wave 4 as a wave B and we are in the wave C now.My next significant date is 19th-21st August.

This count has us starting a A,B,C correction.Either count has us short term bullish, however if this pans out we will be going to 4000 !!!

 

[korrupt_1]

Re: XAO Analysis

Looking a bit oversold??

 

[CamKawa]

Re: XAO Analysis

I've got my RSI set at 14 days on the close and there's still plenty of room down below

With MACD giving a buy signal who's brave enough to buy NAB at -12.2% off then?

 

[wavepicker]

Re: XAO Analysis

As Wavepicker has posted a chart with time analysis on, thought I would do the same.Then Trader Paul can do the same as he challenged E.Wavers on another thread.

My count is slightly different to most.(more an alternate count).Most have my wave 4 as a wave B and we are in the wave C now.My next significant date is 19th-21st August.

This count has us starting a A,B,C correction.Either count has us short term bullish, however if this pans out we will be going to 4000 !!!

Let's see what happens Pete, long term analysis is always very difficult. Luckily I made a quick trade at QAN a few weeks ago( which I exited 2 days ago) ago and caught a good rally to the upside due to Oil getting smashed.

I have a target of 4686-4691 for the XAO low. Is that the bottom for this leg? Well not sure yet, but statistically speaking the 2nd lower std deviation below the Nominal level of the Cycle Bands Analysis I use has provided rock solid support for the last 21 years(which is as far as I have data for). That level is approx 4700. The next band which is -3 std deviations below our nominal level is approx 4200. If it does reach that level it will be the first time ever. So that is why I favour the 4700 level approx ATM.

However anything is possible isn't it!!

No matter how long the bear campaign lasts, there will be many rallies and still opportunities

Should be an interesting next few months

Cheers

 

[tech/a]

Re: XAO Analysis

And to excite Paulie even more here is some Aget analysis which is algorithmic and in my view the least accurate. But as we have 2 views one a cycle analysis and the other an alternate count to many I throw this one into the ring.
Its showing the wave 5 as in complete as yet. If it does make a lower low then Petes count is unlikely.As for time 8--12th August.

 

[wavepicker]

Re: XAO Analysis

Hello Tech, what has been your experience with the AGet Make or Break estimate in the past? Would be interesting to do some backtesting on it to see how it stacks up.

I have done some quick historical projections for the XAO, sometimes the market falls short of the Make or Break target and othertimes exceeds it. This can be anything up to plus or minus the 200 pts above or below the nominal of the Make or Break range. Nevertheless, seems to be quite useful as a guide.


AGet also gives other potential targets for W5 completion, one at 4700 and another at 3897.

Cheers

 

[Boggo]

Re: XAO Analysis

An A B C correction off the Nov 1st high ??
I am not sure I like these bright colours

 

[tech/a]

Re: XAO Analysis

Boggo.

Interesting that wave 5 projection from Get and yours are pretty close.

Waves.
Wave 5s seem to be more on the mark.
Wave 3s often exceeded.
I think the accuracy lies in the count.
Obviously correct counts are more likely to conform to the MOB than those which are obviously arithmetically labelled "To Fit".

Same goes for corrective counts I have found.
To be honest if its not obvious I ditch Aget and most of the time I cant see a label count myself so move on. Often Get will give me the Basic wave count formation---as you know you can label it many ways with the software.

The same observation with the elipse.
If the counts "Correct" the elipse is un canny as is all the analysis from Fib to cycles in Elliot---well at least thats my experience.

 

[wavepicker]

Re: XAO Analysis

If these things happen, 4700 is way too optimistic. If not, we could get lucky. I don't think you can read those things in your wave counts.

I would not even want to try......

The events you mentioned are purely random like your motto. You mentioned IF they happen.
If they did, how could you possibly make head or tails of them?? i.e there has been talk of war before and the market has been up a lot and other times there it has been down a lot. How do you make a decision as to which way to trade from such political statements or events?

The motion of the market is internal and dynamic, the equity "events" ultimately end up having only a small impact on the overall direction of the market over the long term. Studies in the past on the key elements of market motion break it down as follows:-:

-Forseeable fundemental events OR some exogeneous force,
account for 75% of all price motion.The effect is smooth and slow changing.

-Approximately 23% of market motion is Cyclic in nature and is "semi predictable", the basis of which as an example is in the Cyclic Analysis charts I have previously posted

-Random events account for only 2% of price change of overall market motion

It's the 23% that I land others who practice TA like to focus on.

Next then, is there order in the market? The answer as far as I am concerned is very much YES. If there was no order or cycles, then we would not be able to trade succesfully from our charts by recognizing patterns or patterns of trend. For that matter our cycle points would not repeat at fixed time intervals either.

Having said that, for the market to have order is one thing, that does not imply it has accuracy, therefore it's impossible to find that holy grail!!



Cheers

 

[theasxgorilla]

Re: XAO Analysis

Let's see what happens Pete, long term analysis is always very difficult.

I agree. Is the XAO at 4800 when the AUD/USD is at 96 cents meaning the same in various relative macro terms as when the index was at the same level and the cross-rate was 76 cents? Too many things change over time which relate to the meaning of the index at a particular level to expect long term wave counts to be precise.

 

[tech/a]

Re: XAO Analysis

An alternative count which I think more likely.
End result very similar the path taken slightly different.

 

[Boggo]

Re: XAO Analysis

Most predictions and associated variations seem to be ending in the same area.

This is a manual input except for the fib projection (am open to corrections)

There could be 200 points in a short of the XJO on a break below 4787 ?
(attached pic below is XAO)

I think its amazing that the XJO represents over 70% of the value of the overall market.

Mike

 

[davo8]

Re: XAO Analysis

-Forseeable fundemental events OR some exogeneous force,
account for 75% of all price motion.The effect is smooth and slow changing.

True, an attack on Iran would be have a major effect that would last at least months, but it would pass. The generals may know if it's on, but the market is not betting on it.

The 800lb gorilla is the ongoing implosion of the US property and credit markets: first sub-prime, then most residential, then commercial, then everything else, taking banks and finance stocks with it. This is a known, durable, severe force but there is disagreement about the magnitude.

If it's as bad as I think it is, this will be the biggest bear in 70 years, and will shake the foundations of the US government and monetary system, as well as triggering a world recession.

If you can't quantify that, you can't predict how low or how long. You can easily find 100 long-term cycle analysts and after the event 1 or more of them will be proven right, but no-one yet knows which!

The outcome of this process is not priced into the market because the market doesn't yet know what's going to happen. You can find experienced traders making and losing fortunes right now, because they've never seen anything like this before.

TA tells you what other people think will happen, not what really will happen. Often they coincide, but these are uncommon times.

 

[tech/a]

Re: XAO Analysis

TA tells you what other people think will happen, not what really will happen. Often they coincide, but these are uncommon times.

T/A analyses what has happened.
T/A can offer insight into the carrying forward of past and current sentiment.
All analysis is there to be confirmed or rejected.
It neither right nor wrong.

 

[MRC & Co]

Re: XAO Analysis

You may not be too far off Davo.

Most of what is happening now, is still lagging into the data.

Just for the sake of it, here is a piece I wrote a few years ago. Feel free to attempt to rip it to shreds those who enjoy their economics. If you want the graphs I am referring too, I can post them up seperately, but theres quiet a few of them.

Not that I agree with all of it, it was just to proove a point and makes one think where we currently are, and what is really 'known' as of yet by your average trader/investor. I am sure the guys at the Central Bank know a LOT more the dire times we are in than they let out. So how much has really been, 'factored into expectations'?

Will post it in a tick.

 

[MRC & Co]

Re: XAO Analysis

“Time lags involved make a counter-cyclical macroeconomic policy impractical.”

The business cycle is characterised by four stages and is driven by investment and the accumulation of capital. Governments believe the business cycle can be fine-tuned through the use of fiscal and monetary policy. Fiscal policy is a plan to be administered over numerous years and its blunt nature is shown using 2 examples of policy in the 1991/92 recession. Fiscal policy writers face both recognition and administrative/political time lags. Fiscal policy’ crowding out effect is a further lag, leading to added difficulties for policy writers. Real-time output gaps and quarterly national accounts data are analysed for the use of monetary policy, followed by an analysis of monetary policy time lags. Finally, a practical example of the Australian economy in the early 90s is used to show how the complex nature of the economic system and time lags lead to macroeconomic policy impracticality.

A business cycle is characterised by an expansion, peak, contraction and trough. There are several theories attempting to explain the business cycle, the main theories being Keynesian theory, Monetarist theory and Rational Expectations theory. However, all agree that investment and the accumulation of capital play a crucial role in the business cycle. When a shock hits the economy, such as the dot.com bubble burst, investment is hit. When investment in new capital slows, recessions begin and vice-versa when investment accelerates, as viewed in figures 1) and 2), of which further show 5 business cycles over the past two decades in Australia.
In an expansion, investment increases quickly and the stock of capital grows rapidly. This rapid capital growth means that capital per hour of labour is growing. Thus labour becomes more productive and the law of diminishing returns begins, therefore, whilst the quantity of capital increases, the quantity of labour remains constant, and eventually productivity per unit of capital falls. Leading to a fall in profits and less incentive to invest. Investment falls over time, and when it falls by a large amount, recession begins. With slow/falling capital growth per hour of labour, businesses see opportunity for profitable investment and the pace of investment accelerates, thus leading to an expansion. (McTaggart, 2003).

Figure(s) 1), 2)


Governments believe through the use of both monetary and fiscal policy, economic cycles can be “fine-tuned”, thus reducing threat of recession and ultimately enabling long-term sustainable economic growth.
Fiscal policy is defined as, the government’s attempt to influence the economy by varying its purchases of goods and services and taxes to smooth the fluctuations in aggregate expenditure. (McTaggart, 2003, p831).
Monetary policy is defined as, the attempt to control inflation and the foreign exchange value of the domestic currency and to moderate the business cycle by changing the quantity of money in circulation and adjusting the interest rate. (McTaggart, 2003, p835).

As the budget is a plan of government expenditure to be administered over a period anywhere from one to four or more years, the flexibility of the budget and therefore fiscal policy is rather limited. Unlike its counterpart monetary policy, fiscal policy is incapable of rapid adjustment when it becomes necessary to respond to emerging developments. Otherwise known as a “blunt” tool. (John, 2002). This was seen in the 91-92 Australian recession, where 2 fiscal policy packages were observed.
1. 1 nation package – proposed infrastructure spending, on ports, railways, airports etc. The package was intended to be counter-cyclical, however by the time decisions were made, plans were developed and policy was implemented, the money was spent a couple of years after the recession was noticed. (Applegate, 2005)
2. Working nations package – focused on training and skills development of workers, a large focus was also on reducing the NAIRU. Money in this plan was spent faster than the 1 nation package, however planning was still involved and unemployment had moved up by the time the plan was implemented. (Applegate, 2005). Overall, though, the most important conclusion yielded by a study of these packages is that neither will have more than a marginal impact on the economic problems facing Australia and particularly on unemployment. (Quiggin, 1997).


The business Council of Australia recognised two problems with fiscal policy in its 1999 submission of 'Avoiding boom/bust: macroeconomic reform in a globalised economy'. They were a time lag in policy development and implementation, and a distinct link to political decisions. (John, 2002)
A recognition time lag, most often than not, has accompanied fiscal policy in that the economy may already be more than six months into a recession or inflation before the fact appears in the relevant data and is acknowledged. (Jackson, 1998). I.e. employment numbers lag behind the economy. At first employers work their employees harder when business increases (expansion), in time, new employees are hired. Vice-versa occurs in a contraction/recession. Thus loan approvals, confidence surveys (both consumer and business confidence), employment forecasts and investment intentions are used in order to attempt to predict numbers in advance. Forecasts are however, not good at picking turning points in the business cycle. (Applegate, 2005).
Administrative and political time lags are evident as there is a clear link between the time fiscal action is recognised and the time it is actually implemented. (Jackson, 1998). Also known as decision lags, of which are lengthy, as tax and expenditure changes have to go through a lengthy parliamentary decision-making process. (Calmfors, 2003). Tax cuts are faster to hit the economy, however if assumed to be a one off cut, may simply be saved. (Applegate, 2005).

 

[MRC & Co]

Re: XAO Analysis

Such delays reduce the flexibility of fiscal policy prompting many, including the Business Council of Australia, to suggest the creation of an autonomous government body. Similar to the Reserve Bank of Australia, this body would have the powers to make small across the board adjustments to tax rates within one or more major tax areas. This is a minority view. (John, 2002). It is however, hard to know the impact of tax cuts, if seen as temporary they might be saved, furthermore, the cuts could be spent on imports, thus it is hard to predict the multiplier.

Another major source of debate, pointing to the impracticality of fiscal policy in the medium run is shown below in figure 1.

An increase in government spending leads to an increase in demand, leading to an increase in output. As output increases, so does the demand for money, leading to an upward pressure on the interest rate, moving the equilibrium point form A to A' in the ISLM model graph. The increase in the interest rate, which makes domestic bonds more attractive, also leads to an appreciation of the domestic currency, represented by the movement along the interest parity cure from point A to A', reflecting the same change in the interest rate from the ISLM model graph.
Both the higher interest rate and the appreciation decrease the domestic demand for goods, off setting some of the effect of government spending on demand and output. (Blanchard, 2000). This effect, known as the “crowding out” effect, is not experienced for some time after the initial change in government spending, further making it difficult for policy makers to accurately and successfully implement counter-cyclical macroeconomic policy.

Successful macroeconomic management involves a process of continual reassessment of the state of the macro-economy. Among many things that policy-makers would like to know about the current state of the economy is the extent to which the level of aggregate economic activity exceeds (or falls short of) the economy’s productive capacity. (Gruen, 2002, p1). The gap between actual output and the economy’s potential output, is the output gap. This output gap, must however, be able to be measured with relative accuracy in real-time, not only in hindsight. It is difficult to measure the output gap either in real-time or in hindsight, simply because the level of potential output on which they are based is unobservable, including problems such as the uncertainty pertaining to the true structure of the economy and hence the relationship between potential output and economic data on actual output and inflation etc. (Gruen, 2002). On a paper written by Gruen, Robinson and Stone: Output gaps in real time: are they reliable enough to use for monetary policy?, it has been concluded using results from 121 vintages over a period of 30 years, from 1971 – 2001, that estimates of the output gap in real-time are relatively accurate. (Gruen, 2002). Gruen however, also states common logic in his paper, there remains an irreducible degree of uncertainty associated with output gaps generated in real time. The problem of ‘not knowing the future’ is still an important one and there will always be times when the best available estimates of the output gap made in real time will turn out, with the benefit of hindsight, to have been badly flawed. (Gruen, 2002, p32).
Furthermore, estimates of quarterly national accounts are a useful guideline for the implementation of macroeconomic counter-cyclical policy. However, an RBA discussion paper written by Stone and Wardrop states: Initial mismeasurement has also frequently been quite persistent, often largely remaining even several years after the period being measured. (Stone, 2002, p21). Thus, quarterly measurements of the national accounts cannot be taken seriously when implementing monetary policy due to time lags in the attainment of accurate information, as shown with the use of the Taylor Rule at the time of monetary policy implementation and using the same formula with numbers gained from hindsight. Orphanides pointed to this flaw in the Taylor rule and further states in relation to the use of quarterly national accounts figures, they indicate ‘the profound importance of appreciating the information problem for successful policy design’. (Stone, 2002, p21). Finally, it is of paramount importance to remember that uncertainty pertaining to the economy is not only derived from the difficulty of measuring future paths of key economic variables such as aggregate output, but further, in knowing where those variables are now, and where they have been in the past. (Stone, 2002).

A recognition time lag is observed when implementing monetary policy, in that data simply gives a “rearview mirror” through which to view the economy. An impact lag is further evident, in that there are several quarters between a cut in interest rates and the response on aggregate demand.
It is estimated output growth falls by 1/3 of a percent in the first and second years, and 1-6 of a percent in the third year, after a 1 percent increase in the short term interest rate (IR). (Gruen, 1997). Therefore, the majority of the effect on growth occurs more than a year after a change in the IR. IR changes further have a lagging effect on the exchange rate, further complicating counter-cyclical macroeconomic policy.
For example, a fall in the IR is supposed to raise the cost of foreign goods, in that it deprecates the Australian dollar (AUD), however it may take a while before domestic buyers switch from imported products to domestic products.
Furthermore, we do not know the "natural rate of unemployment," which is the rate below which we would start to experience increasing inflation. We further, do not know the exact relationship between interest rates and aggregate demand. (King, 2003). This is known as model uncertainty. The combination of model uncertainty and time lags makes a mockery of the notion of "fine tuning" the economy to always be at optimum performance. (King, 2003).
A research article published at the RBA agrees with the notion it is impractical to fine-tune the business cycle and states: “These relatively long lags, combined with the problems inherent in forecasting economic growth more than a year into the future, point to the difficulty of trying to use monetary policy to iron-out fluctuations in the business cycle.” (Gruen, 1997, p24).

Furthermore, monetary policy aims to achieve medium-term price stability. While output is a leading indicator of inflation, success in the persuit of medium-term price stability does not depend on being able to “fine tune” the business cycle. (Gruen, 1997). “Prolonged swings in output can and should be avoided, but the policy lags are long enough, and uncertain enough, that it is futile to try to use monetary policy to finetune the business cycle.” (Gruen, 1997, p24).

A practical example of why time lags lead to ineffective counter-cyclical macroeconomic policy when interacting with the complexity of the domestic economy and global shocks (both demand and supply side), is the example of the recession in Australia during 1990/91.
Australian recession 1990/91 – firstly the United States experienced a recession, as it is the largest economy in the world, this dramatically impacted negatively on the Australian economy, as both Australian and US Gross Domestic Product (GDP) generally interact very closely. Further, in 1988 the Australian economy was growing rapidly, inflation was already high and there were fears of it growing further due to demand pressures. The RBA began to increase interest rates. However, as part of the general move towards financial deregulation, the link between base money and broader monetary aggregates broke down. (McTaggart, 2002, 767). Illustrated in Figure 3). M3 continued to grow whilst the money base contracted, meaning contractionary effects of monetary tightening weren’t felt for some time and the economy continued to grow. Figure 4) illustrates the recession Australia felt in 1990/91. The recession was caused by a decrease in both aggregate demand (AD) and aggregate supply (AS). AD fell due to the slowdown in the US economy, leading to a fall in exports and a slowdown in the growth rate of the quantity of money, leading to an increase in the IR and a decline in investment. Hence, to a leftward shift in AD from AD0 to AD1. AS decreased because the money wage rate continued to increase throughout 1990 at a similar rate to that of 1989. Shown by a shift of the AS curve to Short-Run Aggregate Supply 1 (SAS1). Note: Long-run AS curve is not shown. The combined effect was a fall in real GDP of $3 billion, from $451 billion to $448 billion and an increase in the price level from 88 to 90.
During the recession, real wages rose and so did unemployment as shown in Figure 5). This was due to the Accord, with wage increases being granted on expected future outcomes, however the rapid fall in inflation due to monetary tightening in 1988 was unexpected, hence although money wage increases were moderate, the real wage rose rapidly as the price level hadn’t risen nearly as high as expected. (McTaggart, 2002).

Figure 3) Figure 4)


Figure 5)